Mortgage professionals and high net worth customers can bypass the advice process but for the everyday borrower it’s not as simple.
To qualify as an execution-only sale the lender can have no interaction with the customer and simply act on instructions.
Since its inception it has proved problematic to offer and administer, with some lenders choosing not to give the borrowers the option while others only offer the choice online to avoid stumbling into a conversation.
Lenders themselves are now asking for some leeway in the process which would allow them to check that the customer has up-to-date information to make the correct decision. An Iress survey out today suggested twice as many lenders see execution-only as the fastest growing channel as favour the broker route.
With such a genuine concern, from lenders and intermediaries that customers may not make the right decision for their mortgage if left unguided, is it time to ban execution-only sales?
We asked our panel of experts if the execution-only option should be shelved as one MMR idea which did not work.
Ray Boulger, senior technicial manager at John Charcol thinks most transactions, even contract variations, fall within the advice sphere.
Arron Bardoe, director at Temple Capital Finance, says directing enquiries to call centres of unqualified staff for transactions which are perceived not to need advice could prove costly for the customer.
Bernard Clarke, media spokesman at the Council of Mortgage Lenders, thinks execution-only should remain an option for lenders but some of the rules need to be reworked.
Ray Boulger is senior technicial manager at John Charcol
We only consider execution-only sales for mortgage professionals but just a minority of our consultants would qualify because the MMR rules stipulate that for a joint mortgage both parties have to be a mortgage professional.
Few lenders currently offer execution-only mortgages, at least via intermediaries. This is primarily a commercial decision because the maximum revenue potential for execution-only sales is so small. But a knock-on effect is that it is impossible for a broker to offer a whole of market service on an execution-only basis.
The Council of Mortgage Lenders argued strongly during the MMR consultation process for execution-only to be allowed on mortgage contract variations.
However, once the concept of advice for purchases and remortgages had been accepted there was never any logic in this argument, especially for product transfers.
When a borrower is simply looking for a new rate and does not want to change the amount of the mortgage, when not moving home, a remortgage and a product transfer should initially be given equal consideration. Clearly a lender can’t do this.
Even if it transpires that a product transfer is the only option, the borrower is unlikely to know this without advice and a remortgage shouldn’t be rejected without being considered.
Should the borrower prefer to deal direct with their lender, and hence only consider a product transfer option, the decisions on type of rate or length of term are just as important as with a remortgage.
The current regulatory situation on execution-only is therefore appropriate to be so restrictive, given the need for advice in most cases, but if online mortgage sales ever increase significantly it might need to be reconsidered.
Arron Bardoe is director at Temple Capital Finance
On principle, I am usually against anything that denies consumer choice and, for a small number of borrowers with simple transactions, “execution-only” should remain an option.
From M-day in 2004, as with investment business, it was expected firms that can offer advice would only ever undertake a small percentage of execution-only business.
However, I believe the FCA has found, while most new mortgage sales were advised, borrowers changing their mortgage term, transferring equity, switching rate or changing repayment basis were often directed to call centres.
Naturally, lenders prefer execution-only as they can employ lower-paid unqualified staff working centrally to process these “transactions” on volume. The high turnover and lack of experience of such staff is easily offset against the cost of tying up the more expensive branch advisers where there is little chance of generating further income.
This mindset forgets that the wrong course of action could cost their customers thousands of pounds or even their homes and so is at odds with the FCA’s objectives. A scripted response sheet and a tick box process cannot ensure the alternatives and implications are properly explained to borrowers.
Instead of seeking a reprieve, I would encourage lenders to embrace the broker community as many would gladly assist with ongoing mortgage changes for borrowers and we simply need the lenders to engage with us.
Indeed, they may even find it is cheaper to pay brokers than try to provide advice in-house.
Bernard Clarke is media spokesman at the Council of Mortgage Lenders
Firms can, of course, decide for themselves whether or not to lend on an execution-only basis. Some may choose not to do so for good commercial reasons.
They may believe that offering both advised and execution-only sales are potentially confusing for some customers. Or they may decide that offering the choice brings unwanted complexity to their sales processes and systems.
On the other hand, it seems perverse for a regulator to deny execution-only as a choice for those who want it, and for whom it is suitable. Why make customers go through a lengthy advised sales process if they do not want or need it? In any case, only a relatively small number are likely to opt for execution-only. And it is most likely to be chosen by those with experience of the market – for remortgaging or moving home – rather than by first-time buyers.
A change for the better would allow some flexibility in providing execution-only customers with appropriate information. Lenders must be sure that those opting for execution-only have the right information, including a complete and up-to-date product list.
But if the borrower’s information is clearly out-of-date, the rules prevent firms from interacting with the customer to provide an update. So, lenders may feel they can only suggest looking again at the website, without explaining why.
It would be more helpful – and customer-friendly – to provide appropriate product information if necessary, without the risk of straying into the advised sales option.
