The regulator said its own advice standards could be inhibiting innovation and some regulatory advice rules and guidance may be removed when the study is finalised.
It means the triggers for advice may be changed, potentially turning more of the market into execution-only sales.
We asked this week’s Marketwatch panel what this could mean for advisers and the mortgage industry.
The FCA’s call in the mortgage market study to explore what more can be done to assist intermediaries in offering more execution-only sales is understandable and well-intentioned.
Nonetheless, enabling more execution-only mortgages could produce undesirable effects that range from lowering standards to raising the risk of people buying inappropriate products.
Getting a mortgage can be a tricky and complex process that involves a whole host of variables, which have serious implications if not properly considered.
Some people can navigate these choppy waters without the aid of an adviser, but these people are relatively few and far between.
Mortgage advice is so often linked to other multifaceted financial planning needs such as pensions and IHT planning.
Without the aid of a professional adviser it can be difficult for a consumer to understand exactly how these interrelate and prescribe themselves the best suited product.
Similarly, it’s critical for people to at least consider protection when taking out their mortgage.
Execution-only mortgages could lead to many people not taking out this type of protection potentially leaving someone exposed to serious financial difficulty in the future.
Lenders may also view the proliferation of execution-only mortgages unfavourably because the industry has worked hard to establish who is responsible for the suitability of the advice and who is responsible for affordability.
This will then become blurred in the customer’s eyes under execution-only.
The FCA’s proposal seems to be motivated by the fact that advisers aren’t leading to cheaper lending.
However, a low cost is not synonymous with good value and often its advice that adds the value.
The recently published report from the FCA Mortgages Market Study suggests that in order to assist customers who may not want to seek advice, there should be tools in place to help borrowers looking to obtain their mortgage directly on an execution-only basis.
While I think this would not be detrimental to advisers, who do not usually get involved with execution-only deals, certain groups of borrowers, such as vulnerable borrowers, those looking to consolidate debt and first-time buyers, would still benefit from having to take advice.
My own experience is that that the majority of clients who come to me having taken an execution-only mortgage previously have little idea of what they have purchased other than the interest rate and term.
Other terms and conditions are often ignored.
The biggest problem with execution-only is that borrowers often obtain multiple decisions in principle impacting on their credit files as they are not making proper comparisons before they start the process but rather going about it piecemeal.
Or many just automatically assume that their current bank will give them the best deal without bothering to shop around at all.
If the FCA are to remove the obligation for taking advice for some groups then they will also need to take responsibility for the outcomes and ensure that the tools are available in order that borrowers can make informed decisions.
Many borrowers, such as those with adverse credit, are already starting from a low point and will not always qualify for high street rates.
Many lenders are also now not ‘on the high street’ and so without the correct tools in place borrowers will not even be aware that these lenders exist.
One of the significant changes that the Mortgage Market Review implemented was the need for customers to be given advice whenever there was interaction in the process.
It was widely acknowledged that many borrowers did not correctly differentiate between being advised and only being given information on a range of products.
This therefore seemed a positive move by the regulator to remove that ambiguity, despite posing lenders a considerable challenge in developing and training their staff to provide an advised service.
For brokers it presented less of a challenge and enabled more borrowers to benefit from advice on their individual circumstances.
It’s therefore a surprising change of direction to be talking about how the use of execution-only could be expanded.
There may well be arguments that some savvy borrowers are able to select their own product option.
However constructing a framework to increase choice for these customers without others being diverted from a better suited advised process and the associated protections is a difficult balance.
Technology is bound to play a key part in this and we are already seeing a greater use of technology to pull back the curtain on what products may fit at earlier stages.
At L&C, although we are seeing strong uptake of the ability to complete an enquiry online, a large proportion still like the human back up and certainly value the fact that they receive advice from across the market.
Online tools will undoubtedly broaden the way that customers can interact with lenders and intermediaries alike.
The other FCA suggestion of an online comparison of brokers will also help customers pick out the right advice for them and help showcase the value of what a broker can do for them.