Mortgage advice firms have seen their Financial Services Compensation Scheme costs cut this year but concerns remain about the future.
In its outlook update today (November 11), the FSCS said the levy for the home finance intermediation class will fall to £3.6m in 2021/22 as fewer than expected firms failed and compensation costs have been pushed further down the line.
The body will not dip into the retail pool this year after all but expects to do so next year as more Sipp operators fail.
This is predicted to push the levy up from £3.6m in 2021/22 to £9.1m in 2022/23.
Was it not for the retail pool mortgage advisers would be levied a mere £1.5m next year.
However, the FSCS said the compensation cost for this class in 2021/22 was £2m less than forecast in May 2021, which has resulted in a surplus of just over £5m, which will be used to offset the 2022/23 levy.
Robert Sinclair, chief executive at the Association of Mortgage Intermediaries, said he was pleased about this year but concerned about the "guillotine hanging over the heads of mortgage firms" which he said was both "stressful and unwelcome".
He said: “For 22/23 we remain concerned about the costs being transferred from bad behaviour in the pensions and investment markets on our innocent member firms.
"The continuing retail pool liabilities being added will not be charged until later in 2022, but this guillotine hanging over the heads of mortgage firms is stressful and unwelcome."
He added: “We are concerned that 73 per cent of the FSCS costs come from advice more than 5 years ago. This means that actions taken by FCA today will have limited short term impact.
"The industry needs a better solution to this compensation mess."
Joshua Gerstler, chartered financial planner at The Orchard Practice, said: “It feels like the costs to advisers and firms are increasing every year. There is always a lot of talk about how fees can impact your investment returns over the long run. It is no difference with levies and charges.
“It makes it harder to run a profitable business if costs keep increasing. We want to make sure that we provide the best possible service to our clients at a price that is fair for both them and us. At the same time, the regulators need to ensure they provide us with a good service at a fair price.”
Lewis Shaw, mortgage, protection and equity release adviser at Shaw Financial Services, said the increase was because the FSCS was “reactive rather than proactive”.
He said: “The FSCS would be better working in collaboration with the Financial Conduct Authority and Financial Ombudsman Service to weed out poor advice, practices and firms rather than penalising advisers from other classes across the board to clean up the failings of other businesses.”
Overall the body has forecasted a levy of £900m for 2022/23, and investment and pension advisers will yet again contribute the maximum £240m.