Financial Conduct Authority 

FCA to change mortgage advice rules

FCA to change mortgage advice rules

The Financial Conduct Authority will ask mortgage advisers to keep a record of why they recommend certain policies after it found people were being sold products that were unnecessarily expensive.

In its consultation on mortgage advice and selling standards, published today (April 7), the regulator said one of the key harms identified through responses to its interim report was that consumers were overpaying for their mortgages, even on advised purchases.

The Mortgage Market Study, published earlier this year (March 26), found about 30 per cent of consumers could have found an identical or better mortgage that was cheaper than the one they bought and that receiving advice made no difference to the likelihood that they overpaid.

To address this, the FCA has proposed to require advisers to explain to the customer and keep a record of why they did not recommend a cheaper mortgage, if the mortgage recommended was not the cheapest policy that met the customer’s needs and circumstances.

In March, the watchdog also stated it was concerned consumers were being “unnecessarily channelled” into advice and said its rules on advice could have been a barrier to the development of tools that help consumers choose and buy a mortgage.

Some advisers said this was a "complete u-turn" from the FCA's previous stance on advice.

Currently, the regulator’s guidance on mortgage advice says that giving generic information could amount to giving regulated advice if it steered the customer towards one or a group of mortgages.

In today’s paper, the FCA stated this regulation had been written before online transactions were widespread in the financial services market and proposed to change its guidance to indicate that a tool that allows a consumer to search and filter based on objective factors, such as interest-rate type and term, is not necessarily giving advice.

The regulator hopes this will make it easier for tools like this to show different options to consumers and means these firms wouldn’t necessarily have to go through all the steps needed to comply with advice requirements.

To further help facilitate an execution-only route, the FCA has proposed a modification of the "interaction trigger" for advice.

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 because of a new advice requirement.

This requirement stipulated regulated mortgage advice should be provided with every face to face mortgage sale — an "interaction trigger".

In today’s consultation paper, the FCA said some firms gave examples where a customer had phoned to ask what to do when their online application froze only to then be diverted down an advised route as there had been an interaction.

To remedy this, the FCA has proposed the "interaction trigger" would now exclude interactions that are unconnected to regulated advice, including support with an application or ongoing case management.

The watchdog did note that this could reintroduce the risk that consumers may think they have been advised when they have not, but stressed this was limited by only allowing interactions most obviously unconnected to advice to be exempt from this "trigger".