Respondents to the regulator’s interim paper slammed the Financial Conduct Authority (FCA) for concentrating on price at the expense of other factors such as service, criteria or suitability in its paper out in May last year.
Today’s paper said: “We agree that price, while typically an important factor in a consumer’s choice of mortgage, is by no means the only one. Mortgages sold to consumers should be affordable, suitable and offer value for money.”
The FCA said its own reviews had already found that most mortgage recommendations post-MMR are suitable and that firms have largely implemented its responsible lending rules.
It said ‘much of our analysis in the MMS did focus on price as little was known about it.’
It also said it understood a consumer may rationally trade off a number of factors against a higher price, such as a desire for speed, specific property characteristics that require certain eligibility criteria, or a preference for a particular lender based on previous experience or geographic location.
But the regulator countered: “However, we do not believe that the harms from consumers’ choice of mortgages that we set out in the interim report are significantly overstated.”
“We took a number of steps to check that the limitations of the data did not bias our results.”
It concluded: “While we have found in the past that most mortgages sold are suitable, being suitable does not necessarily mean a mortgage best meets a consumer’s needs. So, our remedies are designed to help consumers choose a mortgage that better meets their needs overall rather than just to find a cheaper one.”
It added: “Feedback indicates that the industry supports this ambition.”
Feedback also suggested that the digital eligibility tools, allowing borrowers to understand the products they qualify for earlier in the mortgage process might be opaque and discourage consumers from seeking advice.
Iress launched an eligibility tool earlier this month, not for consumers but to its broker software Xplan Mortgage. It allows advisers to perform a soft credit check for applicants with multiple providers in one hit, offering certainty earlier in the advice process.
The regulator said it would monitor the market to look for signs of emerging risks, including to vulnerable consumers, but suggested the benefits of having the tools outweighed the risks.
It said: “Eligibility tools will help consumers who don’t want or need advice to choose a suitable mortgage. They are not necessarily a substitute for advice and will also help intermediaries to find the best products for their clients.”
Commentators argued the tools might provide a simple yes or no answer on qualification, whereas the reality is sometimes more nuanced.
The regulator acknowledged that any eligibility tools developed by the market may focus, at least initially, on consumers with more straightforward needs, not those with the most complex circumstances.