This final report, following consultation, confirms the FCA’s findings from its market study focussed specifically on first-charge residential mortgages.
It confirms that overall the market works well in many respects, but did fall short in some areas, leading to harm for some consumers.
In this final report, the regulator was keen to justify the findings from its interim report where questions were raised during consultation, in particular in relation to arguments that it was too focused on price.
The result is there were a few key areas where the regulator believes the market could work better.
Criteria clarity and lender panels
Making it easier for consumers to chose the right mortgage is one of these.
Interestingly, the FCA identifies that tools available to intermediaries are also limiting, meaning that intermediaries still rely extensively on their own experience, and the challenge this represents given the number of lenders and wide-ranging criteria.
The report focussed on mortgage transaction data from 2015-2016, but since then, new tools such as Knowledge Bank and Smartr Criteria have emerged addressing this in part.
However, the report did identify a lack of transparency around some of the eligibility criteria used by lenders.
The implication it suggests is that if lenders were more open about these parts of their criteria, consumers would be able to make better choices and find a better deal.
Importantly for intermediaries, the FCA also found a correlation between clients getting better value mortgages where the intermediaries had large lender panels.
The regulator further commented that some intermediary panels focused on covering a broad range of consumer circumstances, such as the self-employed, rather than having a number of lenders that could assist with that circumstance to give more choice and deliver a cheaper mortgage option for the consumer.
The FCA was clear in that it wished to see more efforts from the industry in providing transparency of qualification information and it wishes to work with lenders and the industry to achieve this.
How to compare brokers
Another area of focus is giving consumers a choice in relation to the advice they need.
The FCA recognised that since MMR, its rules have been based on suitability and do not refer explicitly to price.
The impact being new mortgage sales are almost all advised and while this leads to sales of suitable mortgages, some consumers are being channelled into an advised route when not needed and some consumers are still not ending up with the cheapest solution even though the mortgage is otherwise suitable.
When advice is required, the FCA found that the choice of intermediary can affect the cost of borrowing.
It wants to improve how consumers are able to compare different intermediaries and ensure, given that their findings relate specifically to the size of an intermediary’s panel, consumers will be able to clearly see both the product ranges offered and whether they use a broad or narrow range of lenders.
The FCA believes this will incentivise intermediaries to use more lenders.
The plan is to use the SFGB to build this based on the existing Retirement Adviser Directory, which can be seen here if any intermediaries would like an indication of what this may look like.
Mortgage prisoners and switching
The final points addressed in the report relate to rate switching and fair treatment for consumers who are unable to switch.
Around 10% of customers could switch to a better deal and do not.
It is a concern that the FCA found evidence that some consumers’ inactivity is being exploited.
For example, some lenders are segmenting customers and focussing their rate switch offering only to clients they feel may remortgage to another lender. The FCA plans to complete more analysis on this.
Some 150,000 consumers have been classed as ‘mortgage prisoners’.
The definition of this is consumers who, despite being up to date with their mortgage payments, cannot get a better deal as they are either with inactive or no longer authorised lenders , or they no longer meet the stricter post-Mortgage Market Review (MMR) criteria.
Food for thought
I welcome the fact that the FCA is committed to finding a way to make switching easier for customers who are up to date with payments and not borrowing anymore.
Overall, the final paper is broadly in line with expectations.
I think it is important, for a number of reasons, for the industry to have a centralised list of advisers and the report does give food for thought for intermediaries to consider in relation to their business models and lender panels going forward.