The Financial Conduct Authority (FCA) said on 14 September commercial deals between broker networks and master brokers were on the list of things it will scrutinise in next year’s competition review.
The work, set to launch at the end of the year, will look at the whole of the mortgage sector, with a view to identifying potential competition issues faced by consumers in today’s marketplace.
In September Mortgage Solutions revealed how some consumers are disadvantaged by commercial deals between adviser networks and packagers after the Mortgage Credit Directive (MCD) brought first and second charge mortgages under one regulatory umbrella.
Under new rules seconds must be discussed at every refinancing interview. This led to networks teaming up with master brokers to advise on any second charge deals, as they were worried about compliance issues with their appointed representatives (AR) dabbling in a corner of the market they didn’t fully understand.
The result of some of these commercial arrangements was that a borrower could pay between £2,250 and £5,825 for the same loan, depending on the brokers’ network membership, Mortgage Solutions’ research found. The divergence persisted across all sizes of loans.
The regulator had previously criticised large broker networks for having a stranglehold on the market and promised to tackle the issue later this year.
Speaking at the Financial Services Expo in London, FCA director of competition Deb Jones confirmed the competition review will look at potential conflicts of interest that could impact on consumers in such commercial arrangements and whether deals were acting as a barrier to entry for new market players.
But SimplyBiz said the market was functioning well besides being new and still changing. “Anything that moves into the more mainstream broker market will change from its original business model, it’s just part of growth in any sector, said mortgages chief executive Martin Reynolds.
“That [packaged] model is from two years ago in a very different market. More lenders will move into [secured loans] and go direct, offering the broker more choice. The FCA will look at the whole of the market. The market is competitive,” he said.
Similarly, Positive Lending chairman Paul McGonigle suggested the regulator would focus more on restricted offerings in the first charge space.
“The reports we have read on the FCA’s review seem to indicate they will focus on first charge mortgages, in particular networks with restricted lender panels – we believe this will apply to networks who are not able to access every lender in the market,” he said.
“Networks accept regulatory responsibility on behalf of their ARs and generally try to provide them with a wider competitive advantage in the marketplace – much more advantage than afforded to a tied adviser in a bank. Directly authorised advisers may register with as many mortgage clubs as they wish. We should not forget that some lenders don’t open their products to the general market place.”
Brokers were also concerned the review could result in raft of changes for the mortgage market to introduce at a time when it was still working through both the Mortgage Market Review and the MCD.
But Jones said the regulator was not “looking to tear everything up”. She said: “Our duty is to enable competition to thrive [and] to create the conditions for a healthy competitive process and then let that process run.
“We recognise there is a fear that the Mortgage Market Study will lead to another wholesale change in the way the market is regulated. However, previous market studies have not resulted in a radical overhaul of the rulebook.”