Borrowers will be able to remortgage their homes without seeking advice from a broker, saving them “time and money,” says the Financial Conduct Authority under changes confirmed today.  

The move, which could lead to as much as £100m in lost broker fees, is part of a package of measures the regulator has made to mortgage rules “to support growth by ensuring more people can benefit from choice in the mortgage market and the security of homeownership”. 

The ruling opens the door to a much greater use of execution-only home loans between borrowers and lenders. 

Under immediate Mortgage Rule Review changes borrowers will: 

• Be able to discuss options with their mortgage provider and get advice when they need it 

• Find it easier to reduce their mortgage term, helping to lower the total cost of borrowing and reduce the risk of repayment extending into retirement 

• More easily remortgage with a new lender, helping them access cheaper products 

It is the removal of the “advice interaction trigger” by the watchdog that has sounded “alarm bells” among intermediaries. 

The FCA says that it “expects many borrowers to continue to benefit from regulated mortgage advice.  

“Lenders are expected to consider what is appropriate to identify consumers who need advice or other support.” 

Alarm bells for brokers

But JLM Mortgage Services group director Sebastian Murphy counters: “The reference to borrowers being able to ‘get advice when they need it’ should sound alarm bells for the advice community.  

“Even apparently simple product switches require a proper full review from an intermediary, as circumstances probably will have changed since the initial mortgage was obtained.  

“If we want to ensure borrowers are getting the most appropriate products for their needs, then the regulator should be helping to steer borrowers towards brokers, not away from them.” 

However, the FCA pointed out in its June consultation paper that of 1.6 million borrowers who remortgaged last year, 83% stayed with their existing lender, opting for product transfers. 

The regulator said it wanted to increase the use of execution-only sales in this area to lower borrowing costs. 

Sophisticated consumers

It also pointed to a 2019 study it conducted, which found that its current rules were “limiting” sophisticated consumers’ access to “execution-only options more than intended”. 

The regulator estimated its changes would range between a £95.1m slump in procuration fees a year for brokers, to a £12.7m drop. 

Consumers are forecast to save between £21.4m and £2.8m a year. 

However, lenders welcomed the move and played down the potential loss of broker fees. 

UK Finance director of mortgages Charles Roe adds: “The optional nature [of the FCA’s changes] means that firms can apply them in line with their own risk appetites. 

“By reducing regulatory friction and enhancing switching flexibility, the reforms will enable the mortgage sector to continue to support the government’s growth agenda, by supporting both new and existing mortgage customers.” 

Knowledge gap

Building Societies Association head of mortgages and housing Paul Broadhead adds: “The changes will allow customers to speak with their lender during the application process without needing full advice.  

“While this could lead to fewer people receiving advice, the initial impact is expected to be limited to customers who go directly to lenders, rather than those who use the services of a mortgage broker.  

“For those using a mortgage broker, it will likely remain business as usual.”  

But as Connect Mortgages chief executive Liz Syms points out: “The difficulty, of course, is that a lack of knowledge means some customers, particularly vulnerable customers, may not know when they really should be seeking advice.” 

The Association of Mortgage Intermediaries, which had been in talks with the regulator throughout the early part of the summer, was unhappy it lost the battle against execution-only loans — but added it had secured notable victories. 

Ami chief executive Stephanie Charman says: “Ami is disappointed by the FCA’s decision to proceed with the removal of the advice interaction trigger, which we believe still carries a risk of consumer harm and poor outcomes.  

“We are encouraged by the FCA’s recognition of the value of advice and its expectation that many consumers will continue to seek support from intermediaries. 

Charman adds: “Positive election [of borrowers to actively choose an execution-only loan] — which the FCA had proposed to remove — remains in place to help consumers better understand execution-only journeys and the loss of associated protections, and the requirement for lender staff to hold a level three qualification has been retained. 

Charman points out: “Notably, the FCA has clarified that under Consumer Duty, lenders must ensure execution-only routes do not cause foreseeable harm— the inclusion of the word ‘cause’ is key and is an important point Ami lobbied for.” 

“Despite the continued trajectory Ami expects lenders to maintain strong support for the intermediary channel.” 

Saving time and money

FCA director of retail banking Emad Aladhal says: “Consumer needs have changed over recent years, and our rules are changing too.  

“Today’s changes support growth by simplifying some of our rules, saving consumers time and money, while ensuring they still benefit from advice, where needed.  

Aladhal adds: “We want lenders to use these changes to innovate and better serve aspiring homeowners and existing borrowers.  

“These reforms are another significant step in our mortgage rule review, which we’re delivering quickly.” 

The regulator will bring forward proposals for its second wider-ranging mortgage review of the summer in the autumn.