FCA to review second charge mortgage advice and customer fees

Advice offered by second charge mortgage brokers is to be reviewed, as the regulator assesses whether customers get a product that meets their needs.

The FCA said it will be considering if “customers have understood the product and have been treated fairly throughout the process”.

The watchdog will also examine whether fees and charges paid by the customer are excessive and how brokers describe them.

A sample of firms’ advice will be monitored, most likely in 2021, the FCA revealed in a ‘Dear CEO’ letter to mortgage intermediaries, which laid out the “key risks” advisers pose to consumers and the wider market.

The regulator has been keeping a close watch over the second charge sector since 2017, and a year ago confirmed to Specialist Lending Solutions that it was still investigating the second charge market for potentially targeting unaffordable borrowers.

The subject of fees for brokers and advisers in the sector has also come under close scrutiny during the period with some prominent firms calling for a cap to be introduced.

Financially restricted

This latest move comes after the Mortgages Market Study by the regulator found the overall mortgage market is generally working well but there are “potential harms” and picked out a number of areas for focus.

Second charge and lifetime mortgages were highlighted as areas of focus for supervision work.

The industry watchdog said: “Second charge brokers generally serve customers who may be less able to access mortgages from their existing lender or the mainstream market.

“Many require second charge mortgages to raise funds for debt consolidation and/or home improvements.”