Labour’s ‘Financing Growth’ report, developed before its election win, shone a spotlight on the need for consumer protection and financial resilience for mortgage customers.
The third of the six policy priorities was to ‘reinforce consumer protection and financial inclusion’. The way to do this? ‘Exploring alternative models for increasing financial resilience including longer-term fixed rate mortgages, adopting a coordinated cross-sectoral approach to fraud prevention, creating a national financial inclusion strategy, and regulating the Buy Now Pay Later sector.”’
The chancellor has put stability and financial responsibility at the core of her proposal to parliament and the country, emphasising new solutions, new strategies, and stronger regulatory scrutiny of lenders. So, is the mortgage industry ready?
Providing fair value through Consumer Duty
The fact is that Consumer Duty is still finding its feet despite some seismic shifts in the investment advice sector.
A year after the regulation was introduced, only one in five consumers have noticed any improvement in their treatment, according to MoneyHub. Labour, however, has signalled its commitment to placing consumer protection and financial resilience at the heart of its plans for the country, shining a spotlight on innovation, resilience, and better consumer outcomes.
Where does this leave the mortgage industry? First, we must review where our current market sits.
Can we honestly state that consumers have genuine diversity of choice? Is there a perfect mortgage product out there for each individual that meets their affordability requirements and preferred appetite with respect to interest rate risk they are willing to take on?
Without a doubt, traditional short-term fixed rate mortgage products have an important place in our system, but it has consistently proven to be an imperfect offering for pensioners, first-time buyers, those struggling to save for a deposit, and hardworking families who want the security their biggest monthly cost won’t change.
Without innovation, we’ll continue to walk the same trodden path. We need to face reality: the industry can’t provide the best outcomes under Consumer Duty without new types of mortgage products.
Room for innovation
The industry isn’t in the most ideal state of affairs. We are experiencing some of the harshest market conditions, with higher mortgage rates, a lacklustre rate of new homes being built, and a higher cost of living.
The new government offers an opportunity to reinvigorate the housing market. The party has shown a willingness to work with industry, and we must step up, engage, and help shape the future of our sector.
That means showing we’re ready to change and innovate to bring about the change that we all want to see – better outcomes for consumers.
With our engagement, Labour will also need to uphold its side of the bargain. It’s essential that regulation imposed after the financial crisis does not continue to stifle innovation. We need bold, brave action to unlock the industry’s full potential.
This could come in many forms including advocacy of certain products, like flexible long-term fixed rate mortgages, which would boost consumer confidence and offer an alternative to products that place all the risk with mortgage borrowers. Other ideas like amending the loan-to-income (LTI) ratio for long term fixed rate mortgages, could increase access into homeownership for many people who are otherwise stuck in the rental cycle.
The government also has a role to play in educating the public and mortgage industry about the options available for specific segments like first-time buyers, and later-life borrowers. All of these groups have historically had a narrow option of mainstream mortgage product, and don’t necessarily have access to products suitable to their needs and attitude to risk.
Planning reform, funding for new homes, improvements to the private rental sector and reassessing property taxes and stamp duty are all on the agenda – it’s up to us to make a convincing argument for where change can happen.
The FCA has made it clear that Consumer Duty and improving consumer outcomes won’t be something to fall by the wayside and we support this wholeheartedly. Brokers and financial advisers have a role in educating consumers on different types of mortgage products and offering the greatest choice possible about the level of interest rate risk that they are willing to take on.
There’s no going back to the status quo. Mortgage borrowers want and need more choice, so show them all options so that informed choices can be made. By rising up to this challenge we will achieve better outcomes for consumers.
Colin Bell is chief operating officer at Perenna
