FCA mortgages review draws familiar response

As has been seen in responses to other FCA market studies, the regulator has been claimed by some to be overly focused on prices. The watchdog expresses concern in the mortgages study that around 30 per cent of borrowers pay more for their mortgage deal than they need to, and is anxious to discover why some remain on their lenders’ reversion rates to their financial detriment.

While acknowledging the importance of price, the Building Societies Association (BSA) says there are other factors to be considered in a consumer’s choice of mortgage – such as speed and quality of service.

The Intermediary Mortgage Lenders Association (IMLA) suggests the number who do find the cheapest deal might plausibly be 90 per cent, not 70 per cent, once individual circumstances such as speed, flexibility of criteria and service are taken into consideration. It says that in any comparable market, such a statistic would be exceptional.

Commoditised

The BSA argues that “the only winners in a price-driven, commoditised market would be those lenders with the deepest pockets”. It concludes that “competition, innovation and much-needed specialist mortgage products would be eroded”. It also warns that the FCA needs to be careful not to champion “standardised criteria” at the expense of specialist, innovative products designed to help customers such as first-time buyers, the self-employed and older borrowers with more complex needs.

It also suggests that for the majority of customers, advice remains the most suitable method of transacting a mortgage. On that basis it rejects any radical changes to the advisory regime. However, it says those who do not require advice are forced down this route thanks to the provisions of the Mortgage Market Review (MMR). 

The regulator recommends the execution-only provisions of the watchdog’s existing Mortgage Conduct of Business rules should be extended to allow lenders and intermediaries to offer factual information and guidance on this basis. 

UK Finance has called for a thorough review of the rules and guidance in relation to advised and execution-only sales. It suggests there is scope for more flexibility in lending criteria with the former, since an intermediary may have additional information about the borrower not captured on the application form. 

Premature

IMLA makes an important point, saying that the enhanced advice regime introduced under the MMR has only been in place for four years – a period in which interest rates have been very low and mortgage transactions sluggish. Therefore it may be premature to make further changes given rates are likely to only move upwards. 

For the first time, UK Finance has also published data on product transfers, showing that 390,200 borrowers switched product with their existing lender (see Table 1). It says the figures confirm the FCA’s findings that customer engagement in the mortgage market is high, the majority of borrowers switch to a new deal shortly after their previous deal expires, and that many choose to remain with their existing borrower when they switch product.

Table 1: Product transfers in the first quarter of 2018

Source: UK Finance. Copyright: Money Management

All three industry bodies have joined forces in a pledge to help borrowers stuck on their lenders’ reversion rates because they are ineligible to move to an alternative product as a result of the MMR’s stricter affordability criteria. This initiative covers 10,000 borrowers subject to certain criteria, such as being customers of an active lender, up to date with payments and searching for a like-for-like mortgage. 

However, the FCA has identified around 140,000 so-called “mortgage prisoners” who are customers of either inactive or unauthorised lenders. The regulator intends to explore what can be done to identify and help this category of borrowers.