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What the market would like to see in the FCA’s competition review – Marketwatch

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  • 01/02/2017
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The FCA call for input has thrown up a lot of suggestions for improvements to competition in the mortgage market, so we've asked the industry what they'd really like to see.

Last year the Financial Conduct Authority’s (FCA) Mortgages Market Study outlined how it planned to examine competition in the market to ensure it works to the benefit of consumers.

Issues that the study will investigate are whether tools used by customers throughout the mortgage journey – including advice – help consumers to make effective decisions and if commercial arrangements between lenders, brokers and other parties are devised at the detriment of consumers.

The role of technology in improving any issues identified in the report will also be reviewed, including greater use of digital channels to deliver information or advice.

This week our panel of experts share what they’d like to see focused on in the review.

David Copland, director of TMA mortgage club, says facilitating access between brokers and lenders would ultimately benefit consumers in the long run.

Christine Newell, mortgages technical director at Paradigm Mortgage Services, names distribution, procuration fees, transitional arrangements and improved innovation as areas which should all be addressed in the FCA’s review.

Stephen Smith, director, Legal & General Housing Partnerships, says the market should look at the FCA’s upcoming review should be viewed as an opportunity rather than a hindrance.

 

David CoplandDavid Copland is director of TMA mortgage club

Healthy competition is measured by the choice of suppliers and the number of products they can source. This is very true of the mortgage market; the more lenders and consequently the more mortgage products that a client can access, the more competitive those products will be.

The FCA’s decision to review this market by looking into the mortgage panels that intermediaries can access is therefore understandable. However, it should be pointed out that a client going directly to the lender is in the worst position as their choice has been massively reduced.

Making it easier for intermediaries to access lenders and conversely helping new lenders to access intermediaries, should be a priority for the FCA. Many companies today, including networks, operate a panel not only to ensure it is representative of the market, but also because of the intense amount of due diligence that is required with each and every lender that sits on the panel.

This due diligence is also required by the lender as the regulator requires lenders to ‘know your broker’. This requirement is often cited as a significant hindrance for new lenders because the scale of the admin required to vet hundreds of different intermediaries is immense. In practice, there is a staggered launch and it often means that smaller directly authorised firms don’t get proper access to these lenders.

I don’t understand why lenders and intermediaries are being asked to carry out due diligence on each other, that should be the regulator’s job. Regulatory fees are paid to the FCA and PRA to regulate the market. Surely, therefore, the dropping of that requirement will go a long way to increasing what I still believe is a very competitive market.

A good start would be to see new lenders given a two-year grace period when entering the market, where the FCA helps them carry out ‘know your broker’ requirements. Helping to facilitate better access between brokers and lenders will ultimately mean more choice for more customers.

 

Christine Newell Paradigm 2015Christine Newell is mortgages technical director at Paradigm Mortgage Services

In terms of impact on competition, we could cite the following as areas which may require further review. Firstly, lender’s distribution of products is not always available to all intermediaries, particularly new lender launches where there is often a ‘soft launch’ approach. We obviously understand why this happens, however, it may drive consumers to seek out certain brokers and/or distribution channels to achieve their perceived best outcome and could be a disadvantage to other firms. This might create an imbalance of power for third-party distributors such a mortgage clubs and networks where the lender chooses to work with certain distribution but not others.

Secondly, there is the issue of product transfers – in the news a lot lately and the subject of much discussion – where there is no intermediation or advice offered and financial rewards are offered to clients to complete their transactions online. Although for experienced clients this may be seen as an easy option, it serves to appeal to more affluent clients and drives consumer behaviour using financial incentives which could be detrimental to more vulnerable clients.

Thirdly, the MCOB 11 transitional arrangements. I would like to see more lenders exercising the flexibility set out in the MMR for ‘trapped borrowers’ and the ability for these clients to access current product ranges when they don’t meet existing affordability requirements. At the moment, only a handful of smaller building societies promote the fact these rules are waived for certain borrowers. This is a much bigger piece that will have far-reaching effects if not addressed via the CFI competition review, similarly in the buy-to-let sector for existing borrowers under PS28/16 BTL standardising criteria.

Finally, what might we do to encourage greater innovation in the mortgage market? Currently, rather than showing encouragement we appear to be stifling it – now this may be an unintended consequence of regulation that can be open to interpretation and a fear of being retrospectively sanctioned, but it is still a concern. Perhaps, the regulator can provide further peace of mind on this in order that innovation does not appear off limits?

 

Stephen SmithStephen Smith is director, Legal & General Housing Partnerships

The FCA has so far only published the terms of reference for the study, highlighting the areas that it is looking to probe. We know that it is going to look to focus on first charge residential mortgages, opportunities for better technology and how to empower consumers, enabling them to choose products on an informed basis. However, the industry should not be concerned by this, we all have good reasons for what we do and why we do it. This is mostly down to the industry wanting to ensure the best possible outcome for the customer, whether that is by the range of choice on offer or the quality of advice available.

As far as I am aware, the questionnaires have not yet been sent out and so the process of gathering the data has not yet started. When this does happen, I do hope the FCA will not solely rely on data and responses to the questionnaires in order to reach its conclusion on how the mortgage market operates. For example, there are myriad reasons why a broker may recommend one deal or one lender over another, which will not always appear on sourcing systems. There are also many cases agreed between lenders and brokers which may have not originally fit into the lender’s published criteria, resulting in a satisfied borrower.

Whatever the findings of the FCA’s investigation conclude, it is going to be a busy year ahead for the mortgage market. However, rather than looking at this as a burden the market should view this as an opportunity to demonstrate the strong service and good advice it delivers to the consumers.

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