It also highlighted there was too much money in the mortgage market at present and emphasised that whatever the election result, faltering business confidence was likely to persist due to the lack of time to negotiate the next stage of the Brexit withdrawal.
In its latest quarterly economic bulletin, the trade body said: “Even if there is a majority government in power on 13 December, the reality is that within the terms of the Conservatives’ deal is a requirement to negotiate another second withdrawal agreement by the end of 2020.
“We are already out of time to negotiate that deal, suggesting there is a strong possibility that the environment of political uncertainty, and faltering business confidence is likely to persist.”
Product transfer threat
Within the mortgage market, AMI said the greatest concern was of rising product transfer business and a likely fall in the amount of this which was completed through advisers.
AMI is predicting that gross lending on residential purchase and remortgage in 2020 will dip by around £20bn to £250bn, while product transfers will see a reciprocal uptick to £180bn.
“This will drive a potential reduction in proc fee income for intermediaries based on basic assumptions,” the trade body said.
“In reality, the percentage of product transfers that remain advised is likely to be much lower in 2020 than this year, as lenders pour investment into developing direct remortgage platforms online that encourage borrowers down an execution-only product transfer route.
“The challenge for brokers in 2020 will be how they take a greater share of the product transfer market.
“Even if they succeed, revenues will be reduced significantly, which should be a catalyst for intermediary firms to consider integrations with lenders directly to facilitate product transfer business and a further push to raise protection sales penetration,” it added.
This risk far outweighed that of borrowers increasingly taking five-year or longer fixed-rate products, AMI said.
It noted that an influx of borrowers who had previously been sitting on standard variable rates (SVR) accounted for around £100bn in remortgage transactions and that should fill much of the gap created by borrowers fixing for longer.
Compliant sourcing and technology
AMI also warned that advisers should be careful when utilising automated advice and product recommendation systems as sourcing systems sit outside the regulated spectrum.
It urged firms to check the efficacy of the outcomes produced by machines against both competitor technology and human advisers.
“Third party firms need to be thinking about how they demonstrate to their users, who rely on their systems to support advice, that they deliver fully compliant outcomes,” it continued.
“Compliance functions within intermediaries will need to consider what they need to see to satisfy their requirements. Disclaimers and disclosure is not necessarily going to be a long-term substitute for system reviews.”
AMI called on the regulator to not overlook the potential for poor customer outcomes as more disruptors come to market using new technology “which might not have been produced by firms fully cognisant of the complexities of the mortgage market and its products”.
“This is not about stopping innovation, it’s about making sure it is done responsibly,” it said.
