FCA told to justify mortgage cost data

FCA told to justify mortgage cost data

The Financial Conduct Authority was asked to justify its mortgage cost comparison data from its recent market study at today's (16 May) Financial Services Expo Manchester event.

The regulator was accused of not taking into account the full client and market circumstances when comparing product accessibility and any potential savings consumers could have made by securing a cheaper deal.

Graeme McLean, head of banking, lending and distribution policy at the FCA, said 30 per cent of mortgage borrowers could have made a significant saving on their mortgage by securing a cheaper version of the mortgage they got.

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He said consumers could have saved on average £550 per year by getting a cheaper mortgage, regardless of whether that customer came through an intermediary or direct channel.

Mr McLean said because of these findings the regulator wanted to "work with the industry to help consumers to shop around” and added the regulator had "no preference for how this would happen".

But Mr McLean was asked about the cost saving analysis, arguing the FCA was not able to take into account the full circumstances around why an adviser would choose not to recommend the cheapest option.

One adviser said there were "a raft of reasons why we might recommend the fourth/fifth/sixth cheapest product – for example, affordability or the information provided to us".

He said the regulator was effectively saying "brokers were doing a poor job".

But Matthew Ward, competition manager at the FCA, admitted the regulator had made "a whole load of assumptions but we have tried to make conservative assumptions" with the analysis.

He said that in terms of service levels and other 'soft facts' that an adviser would take into account, "we don't have the data".

At the start of this month the FCA's interim findings on the state of the mortgage market identified a number of ways it wants the mortgage market to work better for those buying a property.

The FCA found a significant minority of customers - around 30 per cent - failed to find the cheapest mortgage for them.

While a number of longstanding customers would benefit from switching away from a reversion rate the FCA found they cannot, despite being up-to-date with payments.

The regulator found most of these mortgage prisoners took out their home loan before the financial crisis.

The FCA identified a range of potential ways to make the market work better for consumers. 

These measures include the watchdog removing barriers to innovation in the sale of mortgages, including those due to aspects of FCA advice rules and guidance.

The FCA is also looking at ways to make it easier for consumers to assess the strengths of different mortgage brokers. 

The regulator intends to work with the broker sector to develop metrics to help consumers compare brokers.