Bennett describes the regulatory landscape for mortgages as an absolute ‘plethora of initiatives going on,’ not just from the Financial Conduct Authority (FCA) but the Prudential Regulatory Authority, Competition and Markets Authority (CMA) with its super-complaint response, and others as well – so this period has been more like ‘air traffic control’, she says.
The CMA’s response to the super-complaint on mortgage pricing was out just before Christmas and the competition regulator is largely of the belief that the issue is in the FCA’s hands.
The CMA said it strongly supports the FCA’s market study on mortgage prisoners, adding there are still 10% of longstanding customers who could switch and make significant savings but do not, and so it expects the regulator to work this through.
Still to come is the FCA’s response to the fair pricing discussion paper at the end of January and the Mortgages Market Study paper due out in the first three months of this year.
Victoria Hartley: Do you get the sense that the dots have been joined between all of these different pieces of work?
Jackie Bennett OBE: I’d like to think, I suppose, that the Mortgages Market Study (MMS) will be the culmination in terms of the response to the super-complaint and what we’ve put into the fair pricing discussion paper. Then based on that, I would hope the FCA will bring that out as part of the MMS when they issue their final report.
VH: Okay. How hopeful are you that UK Finance is being listened to?
JB: I think we’re absolutely being listened to. There are certainly a lot of meetings going on, there’s a lot of discussion going on, not just with ourselves but with other trade associations as well. We’re certainly doing what we can to make sure that the industry’s view is being heard.
VH: How did things go so wrong with the initial Mortgages Market Study consultation paper when it emerged from the regulator in May 2018? The industry and trade bodies responded almost with one voice in initial criticism of the regulator’s apparent fixation on pricing and multiple channels, potentially at the expense of advice.
JB: Of course, I wasn’t at UK Finance when all the research was being done. I think wrong is probably quite a strong word, because actually the FCA themselves thought that the market was working well for 70% of customers and I think what we’ve all been talking about is maybe they didn’t realise some of the complexity of the market, and particular customers as well.
We’ve seen a lot of development in the fintech space, particularly in the mortgage market. And I think our view is that – again we said this in our response – that development should be allowed to continue. I’m not sure that actually it’s for the regulator to intervene in that space, this is a free market and it’s up to lenders and intermediaries and customers, to a certain extent, how they choose to come to market, to research the market. Yes of course customers should have access to good information but the mortgage market is complicated and actually that’s where a broker, particularly if they’ve got complex circumstances, that’s where a broker is ideal.
VH: I agree, but obviously for our readers, particularly the downgraded centrality of mortgage advice, which came across in the paper, that was quite a shock.
JB: Yes. And I’m not sure that that was actually the case. I think certainly what we’re looking for is some clarity around particularly using online tools, so pop-up boxes and information.
VH: So, how far can you give customers information without making sure that it’s not tripping over into advice?
JB: Absolutely we’re not saying that there’s no place for advice, we’ve never said that. And I’m not sure the FCA was saying that either. It’s about customer choice.
VH: I agree, but I think the emphasis of the paper suggested that – it de-emphasised the centrality of advice I think in the way that there are so many options that should be considered first in terms of pricing.
JB: I’m not sure I read it like that.
VH: Okay. Do you have comfort that the FCA understands the complexities and the interplay and the difficulty or the importance in making sure people are aware that comprehensive, tailored, personally-tuned advice is a very different thing to a bank offering a bit of information here and a leaflet over here, saying take it home. It’s very different and that the FCA gets that?
JB: I think what we have seen right through from when the paper was bought out and even now once we put our responses in, there are a lot of meetings going on with the FCA, with different groups of people, whether that’s lenders, intermediaries, trade bodies; there is a lot of talking going on, so that they do understand. I would actually say they are trying their best to understand what they’re looking at, what the impact of any recommendations might be.
Back in July, UK Finance confirmed that 59 lenders representing 93 per cent of the UK’s residential mortgage market agreed a list of common standards to help 10,000 mortgage prisoners with active lenders and up-to-date on repayments.
However, Bennett says there is plenty of work still to do to help the 20,000 homeowners with closed-book lenders or the 120,000 in the unregulated space.
JB: But that’s going to need regulatory changes at the very minimum and possibly legislative changes, because primarily this is about not being able to use the transition arrangements to move customers between one lender and another. Lenders are not necessarily going to be able to help everybody, but [this] is something that we know the FCA and the Treasury are looking at and thinking about.
VH: Obviously these people started in a regulated space and were gently, for commercial reasons, moved into unregulated, so from a consumer point of view, surely there is an argument for coercion and really strong-arming to create a framework there to support them.
JB: And that’s exactly what government should look at.
VH: What kind of time frame would you expect there to be some concrete results from these discussions?
JB: I think that’s quite difficult. It depends on – if lenders are willing to offer products, then it depends on that regulatory piece and as I say, I think we’re waiting for answers really from the FCA and from Treasury as to whether that is simply a handbook change or whether that would need legislation.
There are definitely a number of lenders who are willing to offer products to some of these customers. But as I say, there’s quite a lot of things to think about.
VH: Let’s move to product transfers (PTs) because that’s an interesting, relatively-speaking, very new part of the market. Obviously it looks good from a broker’s point of view at the moment but what sort of conversations are happening among your lender members on PTs?
JB: The first two quarters’ data that we published, each time, over half of those product transfers have been done with advice. So I think that shows that where customers want to stand back a bit and review their circumstances, review the situation, they’re absolutely doing that. And certainly when lenders write to customers offering them a product transfer, they will also make it clear that they can only offer them products from their range and that advice is available and if there is any change in circumstances, they should go and take advice. I think the fact that more than half of customers are getting advice when they do that is a good thing.
UK Finance confirmed it had to revise down the product transfer figures in November after a £30bn reporting error from Barclays.
Data for Q1 was originally reported to total £53.7bn; following the amendment the figure is now £38.8bn, while for Q2 the figure has been revised down to £36bn of mortgage debt refinanced internally from the original figure of £53.8bn.
From CML to UK Finance
VH: From the Council of Mortgage Lenders (CML) where you were head of policy for almost 13 and a half years to UK Finance, it feels like quite a seismic change. How does it feel to you?
JB: UK Finance has been up and running for 18 months now and I’ve done nearly 10 months. We’ve got deep resources across a range of topics now and actually I think we’re all beginning to see the benefit of being able to work across the organisation and in broader areas. So vulnerability, for example, things like the death notifications scheme and financial abuse code of practice that now we can all be part of and have single initiatives, single documents, rather than having different ones coming out from the CML and the BBA, which has got to be better. But I think it’s just about getting to the point where we’re able to leverage those similarities now or synergies across the different areas, which I think absolutely we’re getting to do.
VH: How many people are there at UK Finance?
JB: It’s about 170. I think there were 29 at the CML. But you can’t make that direct comparison because it’s one prong of a multi-spoked wheel and certainly within common service areas like finance and HR and all of those, inevitably there would have been some duplication in the former trade bodies. It’s not a straight one-for-one swap.
VH: How big is the policy team?
JB: There are six of us including me.
There are 156 mortgage members of UKFI I think I saw at the last count. Even if you strip some of the brand subsidiaries out, there are well over 100 different lenders and we still represent 98% of the industry. So the membership is just as strong as it ever was. They’re engaged, we talk to them daily.
VH: Okay. What are the biggest issues for members from a policy point of view?
JB: I think all of these potential interventions around front book and back book pricing are top of everyone’s mind at the moment. There’s been a lot of work this year on Support for Mortgage Interest, the change by the Department for Work and Pensions (DWP) from a benefit to a loan. Lenders did a lot of work last year reaching out to customers who they knew were on Support for Mortgage Interest because obviously they were receiving it, trying to make contact with them, helping them to understand what the change might mean for them, whether there are ways in which they could pay the money in another way.
And to date, 71,000 customers have declined the loan. So far, anecdotally, we’re hearing that a lot of people are able to make up the money elsewhere but we are also hearing that some people have gone into early arrears. The lenders will carry on working with them and it’s also the case that the customer can go back at any point and still take the loan out. So even if six months down the line they decide that actually they do need the money, they can go to DWP and ask for that to be backdated.
VH: What do you see as top of your inbox for the next six to 12 months?
JB: The Mortgage Market Study, coming back to that again. It is, unfortunately, the top priority at the moment. It is the biggest thing in the industry at the moment and it’s definitely top of the list.