The UK mortgage market has entered a period of intense volatility.

Geopolitics has upended inflation and interest rate expectations, with lenders responding to the war in Iran first by pulling a huge tranche of deals, and then by jockeying for position with rate cuts just a few weeks later.

With the prospect of a cooling housing marketing, not to mention stagflation and continued global conflict, first-time borrowers are nervous, and lender behaviour is unpredictable. The race is on for mortgage brokers to seal deals quickly and efficiently, while the 1.8 million fixed-rate loans due to expire this year are increasing their workload.

To add to the pressure, lenders are competing intensely to cut the typical 150-day average period from acceptance of an offer to move-in date.

In this febrile climate, mortgage brokers need to be mindful of age-old liability traps, and newer issues that could harm their bottom line and their reputation.

Administrative errors

Intermediaries communicate with their clients, lenders, insurers, and solicitors, multiple times, and must adhere to strict rules and regulations.

Simple mistakes with data are easily made but can have major consequences. For example, an inaccurate address or house number when submitting applications might seem like an easy fix or minor error, but this can have devastating consequences for your client should they need to claim on their policy.

Another common administrative pitfall is a failure to record key conversations or otherwise document accurately what has been agreed. Mortgage brokers need to not only follow clients’ instructions but be able to prove that they have done it. As well as evidencing conversations, a simple follow-up letter outlining what was agreed is essential. Claims emanating from borrowers who have been put on mortgage terms they insist they never wanted are commonplace.

As businesses, the most untroubled mortgage brokers are those with sufficient back office support to ensure they are on top of the day-to-day workload, even during periods of intense time pressure or heightened activity.

Use of AI

Mortgage brokers, like most businesses, are experimenting with AI to increase efficiency, but they have to be aware of the potential risks. It is important to recognise that AI can be helpful when assisting with day-to-day tasks, but problems are inevitable if it is used to replace human expertise, without any oversight of its output. It is vital that all-important suitability reports, which constitute a formal record of the advice given, are overseen by mortgage professionals to check for inaccuracies.

Any firm that is utilising AI within their day-to-day business activities should have a usage policy that is to be circulated and followed by all employees. Firms should also be mindful of their client data and how open-model AI systems utilise this. Using open-model AI systems when data subjects have not given their consent creates AI liability risks.

As with any business, AI use must be properly governed and supervised.

Poor treatment of vulnerable customers 

The FCA’s Consumer Duty introduced new requirements for dealing with vulnerable customers, and embedding the 2023 regulation remains a regulatory priority. Mortgage brokers must have procedures for identifying vulnerable customers, monitoring changes in circumstances, communicating their findings to those who need to know, and adjusting the support they provide accordingly.

This could mean, for example, sending additional documentation, or calling the customer rather than relying on email. Brokers also need to be able to demonstrate that their advice was properly understood. The absence of key documentation such as a signed suitability letter or record of explanation is a major driver of upheld complaints by the Financial Ombudsman.

This also applies to clients with complex circumstances, including the self-employed and borrowers with blended income. It is important that brokers gather comprehensive evidence about the borrower’s circumstance, and ensure the borrower understands the financial decision they are making.

Ultimately, the risks facing mortgage brokers are not new, but the current environment is increasing both their likelihood and their cost. Small process failures, unchecked reliance on technology, and gaps in supporting vulnerable clients can quickly turn into significant liabilities.

Brokers who take a disciplined, well-structured approach to documentation, oversight, and client understanding are best placed not only to avoid claims, but to protect both their clients and their long-term reputation.

Shriya Patel, underwriter at Collegiate Underwriting