Mortgage Market Review  

FCA concerned consumers are 'unnecessarily' taking advice

FCA concerned consumers are 'unnecessarily' taking advice

The Financial Conduct Authority will consult on changes to its mortgage advice and guidance rules in the next quarter of this year, stating it believes some consumers are being "unnecessarily" channeled into advice.

In the final report of its Mortgages Market Study published today (March 26) the regulator suggested "almost all" new customers were guided to an advised route, which meant some were likely being "unnecessarily channelled" into advice - although it did not think this had necessarily caused any consumer harm.

In an occasional paper published last May the FCA stated the 2014 MMR had led to consumers increasingly turning to intermediaries instead of approaching a lender directly, with the share of intermediated sales to new customers rising from 50 per cent to 67 per cent.   

This was predominantly due to a new advice requirement which stipulated regulated mortgage advice should be provided with every face to face mortgage sale, whether conducted by a lender directly or an intermediary.

The FCA also stated lenders and intermediaries found the regulator’s advice and guidance rules to be a barrier to innovation, with companies reluctant to develop tools to sell products via execution-only to avoid "inadvertently" breaching the rules.

In particular lenders and intermediaries were concerned they may be considered as giving regulated advice if they give generic information that leads to a mortgage contract.

The FCA said: "These perceived barriers appear to restrict lenders’ and intermediaries’ ability to innovate to meet consumer demands for information and guidance in a non-advised, digital environment."

The regulator also pointed to a limited appetite among intermediaries and lenders to develop online advice propositions.

The regulator said: "We do not think that any specific provisions present barriers to online advice but firms appear to think that the FCA does not see a role for online mortgage advice."

But the FCA said it was ultimately up to lenders and intermediaries to consider whether and how to develop innovative tools, including online advice models.

In 2014 the Mortgage Market Review changed the regulatory regime for mortgages - creating new rules requiring affordability to be checked more stringently, tighter qualifications for sales staff and a new approach to mortgage advice and selling.

In today's review the FCA found, on average, consumers who bought a mortgage without advice before the new rules experienced "no significant change" in outcomes such as falling into arrears, needing forbearance or triggering an early repayment charge, since the introduction of the new advice rules in 2014.

The FCA said: "This suggests that, many, but not all, consumers who opted out of getting mortgage advice before the MMR had sufficient financial capability to make suitable product decisions on their own." 

The regulator stated there were some important caveats to these findings, but they had not dissuaded it from its proposals.

The FCA confirmed it was committed to identifying what changes it could make to its advice rules and guidance to reduce barriers to innovation in mortgage distribution, but stated it recognised the "important role" its rules played in providing a degree of consumer protection for many borrowers.