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".
To further assist the execution-only market, the FCA proposed to remove barriers that currently make execution-only sales inaccessible.
These include removing ‘prescriptive detail’ rules — which require a lot of detail to be included in a firm’s policy on execution-only sales — and clarifying that firms can actively market their execution-only channels and show different prices between execution-only and advised policies.
Christopher Woolard, executive director of strategy and competition at the FCA, said: "The mortgage market is working well for most customers but we have identified some areas where our rules are acting as a barrier to innovation.
"The changes we’ve announced today will allow firms to develop products and services which can truly meet the needs of customers."
Responding to the proposals, UK Finance director of mortgages, Jackie Bennett, said they provided helpful clarity on the boundary between execution-only sales channels and mortgage advice.
She added: "This should help ensure that firms can easily provide factual information to borrowers who opt to go through the execution-only route, helping them to choose or switch product quickly and efficiently. It will also support continued innovation, particularly in digital channels."
Nicholas Morrey, product technical manager at John Charcol, said most intermediaries had already been looking at price as a main factor but stressed that full advice and recommendation meant considering factors such as flexibility, speed of processing and forward planning.
He said: "Any one of those points can lead to a recommendation that is not the cheapest option."
But Mr Morrey said the bigger change was when a transaction is conducted under ‘full advice and recommendation’ and said the FCA seemed to be paving the way for ‘informed choice’ and execution only.
He added: "Intermediaries are likely to welcome change in this area to improve the journey for applicants who are better informed as to their own needs and whose situations are fairly straightforward enabling the swift placement of their mortgage – often based only on cost.
"But we would not want to see this relaxed too far to prevent some consumers requesting a lower level of advice and leaving the intermediary in a position where key requirements are not uncovered as that could lead to an inferior product being applied for to the consumer’s potential detriment."
imogen.tew@ft.com
