The FCA published updated mortgage advice guidance last Friday, which alongside stating that advisers will “need to explain why they have not recommended the cheapest” suitable mortgage, said that it would like to make execution-only channels “easier to use“.
Mortgage Strategy decided to ask some well-known industry figures for their thoughts on this update.
London Money founder Martin Stewart believes that the brokering community should not be too concerned with the regulator’s focus on execution-only channels. He says: “It is merely another step in the ever-evolving distribution of mortgages in the UK.
“You cannot blame lenders for looking for alternative routes to market and this may herald a much-needed discussion about how lenders and brokers are going to work together in the future. We control the distribution but the lender controls our income and the sooner a grown-up conversation happens surrounding that the better.
“The brokers need to stop complaining about being the statue and start recognising we are actually the pigeon.”
Bespoke Finance director Adam Hosker says: “As the FCA moves to deregulate mortgage sales, I do foresee a degredation of consumer outcomes. As any nanny state pulls back on consumer protection there will be those that need advice no longer finding it.
“In the absence of an overprotective state the market will see lower barriers to entry, lower regulatory operating costs, lower client costs and innovation.”
Twenty7Tec founder and chief executive James Tucker is positive about the guidance on technology. He says: “Having reviewed the report thoroughly, we are broadly welcoming of certain elements that encourage the use and development of technology within the market.
“For example, the clarification in the perimeter guidance on mortgage advice that make clear that tools that allow search and filtering based on objective criteria are not necessarily giving advice, coupled with permitting more customer interaction before firms are required to give advice, supports a fair and transparent market with customer choice and information at its heart.”
However, on the subject of execution-only channels, he comments: “Changes in the policy statement that allow channels to suggest borrowers ‘take out or do not take out’ a certain type of mortgage, the seeming permittance of dual-pricing strategies, and the amendment of the sales process rules to highlight the FCA’s belief that execution-only sales are not inherently riskier than advised ones, come with potential detriment to the customer and wider industry.”
Imla executive director Kate Davies adds: “The FCA’s position regarding sales channels is neutral, and amended rules published in PS 20/01 are therefore likely to create some re-balancing of the current split between advised and non-advised sales, including non-advised execution-only.
“Lenders have found it difficult to go down the execution-only route, given the ambiguity surrounding what may or may not trigger a requirement to give advice.
“In our response to the earlier consultation, we noted that while non-advised and execution-only sales may be entirely appropriate for some consumers, there will be many, particularly first-time buyers, who need professional advice in order to help them to ask the relevant questions about their circumstances and ensure they buy the right products.”
John Charcol senior technical director Ray Boulger is critical of the demand for brokers to explain their choice of product. He says that the FCA’s explanation of how to calculate the cheapest mortgage is “riddled with holes”.
He provides three examples. First, that it ignores cashback, which can be “very material” for small mortgages; second, that the definition of the relevant period is faulty when fixes and discount products are stacked; and third, that end dates in fixed periods can vary massively – a four month difference can equal 15 per cent, which would lead to an SVR period being included in the calculation while a similarly priced fix would not suffer this disadvantage.
Boulger concludes: “What borrowers really want to know is why a particular mortgage has been recommended and a general comment on why others which may appear cheaper were less suitable, not just why only the cheapest of these was not recommended.
“Because this way of calculating “cheapest,” is at variance with the rules required to calculate the APR/APRC, which are also designed to facilitate price comparisons of similar mortgages, the FCA is promoting two contradictory ways of assessing cheapest.”
