In its Retail Conduct Risk Outlook paper, the regulator said that, while many firms which were dependent on specialist business have left the market, many may still be operating in sectors including buy to let, bridging finance and debt management.
The regulator said that mortgage brokers active in the market have “diversified” by offering customers advice on a range of products, such as life and protection.
However, the FSA added: “Others have adopted strategies to sell niche products to the mass market with the design of some mortgage products focusing on first-time buyers and vulnerable groups, including the elderly with equity in their homes.
“These activities have elevated our concerns around suitability and quality of advice.”
The FSA said that since the start of the financial crisis, gross mortgage lending by specialist lenders has contracted sharply with the share of total gross mortgage lending accounted for by specialist lenders falling from 18% in March 2007 to just over 3% in December 2009.
