Financial Conduct Authority  

FCA's vanilla market 'shrinking fast'

FCA's vanilla market 'shrinking fast'

The market the Financial Conduct Authority is targeting in its move towards execution-only mortgage sales is "shrinking fast" as consumers' financial affairs become more and more complex, industry experts have said.

In its consultation on mortgage rules out in May, the FCA proposed a shake up of the rules designed to increase access to execution-only products after it found consumers were being "unnecessarily channelled" into advice and were still not necessarily getting the best deals.

Its evidence showed almost all new customers were diverted into an advice route and the regulator suggested there would be some consumers looking to take out simple products that may not need advice.

But industry experts have said this target market was shrinking fast and that a move towards execution-only was not the kind of innovation needed in the mortgage sphere.

Peter Izard, director at Investec Private Bank, said this kind of move by the FCA should be "carefully considered".

He said: "The number of vanilla type mortgage transactions is reducing as the lending requirements of clients continually change and the options available increase. That market is shrinking fast.

"When making the largest financial decision of your life, surely most clients would benefit from advice."

Mr Izard pointed out there was a growing number of self-employed workers and first-time buyers with high loan-to-value needs all of whom would benefit from receiving advice. Later life lending and second charge lending was also on the increase.

Latest official stats from the ONS showed self-employed workers now make up more than 15 per cent of the workforce and the number of self-employed jobs increased by 76 per cent — from 471,000 to 832,000 — from Q2 of 2013 to the same quarter in 2016.

Mr Izard added: "The number of those with simple needs is shrinking. Many would say there is no such thing as a simple mortgage transaction."

Christine Newell, mortgage technical director at Paradigm, thought there was "no such thing as a straight forward case any longer".

She said: "I am firmly in the stable of promoting advice as the best course of action for anyone looking to get on the property ladder.

"Having worked in the industry for 29 years, the myriad of criteria and products — around 9,000 different deals — is way too much for a person with experience to deal with, let alone a first time purchaser."

Other mortgage experts have suggested the mortgage industry does need a change — but not a push towards execution-only.

Kevin Roberts, director of Legal & General Mortgage Club, said: "If you’re a consumer, why would you not take advice? You have access to five or six times the number products and you do not have to trawl around the market. It’s also better to get a balanced view.

"I can see how some very simple product transfers may be ‘vanilla’, but if you do make [execution only] easier then what about those people who do not quite understand it. It’s quite easy for them to think ‘price price price’ and get the wrong deal."