Mortgage brokers will have no levy to pay to the Financial Services Compensation Scheme (FSCS) in 2022/23 but have urged for greater transparency from the lifeboat scheme.
In an update today (May 26), the FSCS said its levy for 2022/23 fell by £275mn to £625mn, saying there have been fewer self-invested personal pension provider failures and complex pension claims.
For the home finance intermediation class, the updated levy was £0, down from the £9.1mn forecast in November last year.
The FSCS said firms in this class will not be required to pay an annual levy in 2022/23 due to lower than expected compensation costs in 2021/22, the opening balance for this class has increased by a further £3.5mn which has been used to offset against the 2022/23 levy.
However, they could have liabilities which fall into other classes such as protection advice.
An £8mn retail pool contribution will also no longer be required by this class as the FSCS no longer expects the life distribution and investment intermediation class to breach its annual levy limit and require additional funding from other classes.
The compensation pay-outs expected for 2022/23 have also decreased from £5mn to £1mn which has led to the zero levy from brokers.
The FSCS said it is not expecting any new failures in 2022/23 and the close to £1mn compensation pay-outs expected relate to firm failures in previous financial years.
However, despite this, Shaw Financial Services founder Lewis Shaw said: “The FSCS have to try and predict how much they may need to pay out in claims.
“Clearly they think they’re still going to need that amount of money to compensate people. It’s very much an opaque system and tends not to make much sense to any of us.”
Likewise, Missing Element Mortgage Services mortgage & equity release specialist Paul Neal, said: "The FSCS is fantastic at baffling us with numbers, in a nutshell they need this sum of money to cover management costs and compensation.
“There are big numbers however a drop from £900m to £625m surely is only a good thing. I wonder where the other £275m will go?”
Meanwhile, The Association of Mortgage Intermediaries chief executive Robert Sinclair, was hopeful that this current reduction would not come back to bite in future years.
“Most also have permission to sell protection and GI, so they will have a liability in that class, albeit lower than last year,” he said.
“AMI is concerned that the reductions in the life distribution and the investment distribution might be over-done, but hope that this will not lead to calls on the retail pool in future years as claim flows crystalise.”
sonia.rach@ft.com
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