MortgagesOct 30 2020

FCA warns brokers on providing services 'without experience'

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FCA warns brokers on providing services 'without experience'

The financial regulator is expected to begin probing advice given on second charge and lifetime mortgages next year amid ongoing concerns surrounding suitability. 

The Financial Conduct Authority is expected to have a particular focus on how fees and charges are explained to customers and whether they "may be considered excessive". 

In a Dear CEO letter sent to mortgage advice firms yesterday (October 29) the City watchdog warned some consumers were potentially paying too much for advice and others were still being advised to buy unsuitable products.  

The FCA said: "The impact of Covid-19 may exacerbate the risk of unsuitable advice, particularly if consumers seek to address any short-term financial pressures caused by the crisis without understanding any longer-term implications.

"We are also concerned that advisers seek to address their own income shortfalls by providing services where they may not have the relevant experience."

The regulator confirmed it would be heating up its scrutiny of second charge and lifetime mortgage advice in 2021, with renewed supervision of the latter expected to begin in the first half of the year. 

Following its recent work on later life lending, the FCA said it was still concerned about the personalisation of advice in the lifetime mortgage sector, a lack of evidence to support suitability decisions and in some cases insufficient challenging by advisers of customer assumptions. 

In June the watchdog sounded alarm bells over unsuitable equity release advice after a review found some mortgage advisers were falling short in the market. 

FCA said its work in the equity release market had uncovered mixed results, with some cases where lifetime mortgages were working well and unlocking equity for consumers who could not afford traditional mortgages.

But the watchdog also warned of "significant areas of concern" where advice was not in the best interests of the consumer.

The regulator is also set to probe the suitability of advice in the second charge mortgage market and review a sample of advice in the sector to assess if customers understand the product and have been treated fairly throughout the buying process. 

A second charge mortgage means a consumer can raise funds using any equity they have in their property as security against the loan rather than remortgaging the property.

The consumer will then have two mortgages on their property rather than the single first charge policy or remortgage plan.

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