This week we are featuring an open letter from Malcolm Davidson, director of broker UK Moneyman to the Financial Conduct Authority (FCA) on non-advised mortgage product transfers.
No one can doubt the success of the Mortgage Market Review (MMR) of 2014 for which the regulator should be congratulated, but I feel the market is beginning once again to potentially fail a section of borrowers.
If I may take a direct quote from Section 5.2 of the July 2010 pre-MMR Responsible Lending Consultation paper:
‘We have a mortgage market where many consumers have regularly remortgaged, shopping around far more than seen in the investment market, for example. For many of these consumers, the market has worked well.
‘But the level of mis-buying also highlights that some consumers are failing to properly engage and that we cannot rely on all consumers to be able to protect their own best interests.’
When this was written back in 2010, I do not feel there could have been any reasonable way anyone, including the FCA, could have known just how big the post MMR non-advised mortgage product transfer market would become.
Choice for consumers is a good thing and I have no problem whatsoever with a client hooking into a new deal with their current lender, as long as they are aware that there may be other more suitable deals available elsewhere.
Take my clients Darren and Dawn from Manchester.
Their lender waived their early repayment charges before the end of the fixed rate I arranged for them and they hooked into a new deal online without taking further advice.
Dawn was pregnant at the time and when they approached the lender for a home improvement further advance a few months later, they were declined on affordability.
The client re-engaged with me at this point and whilst I was able to help them obtain the additional funds they needed to create an extra bedroom, a £3,000 early repayment charge was triggered.
Had Darren and Dawn spoken to an adviser instead of taking the easy ‘click here for a cheaper deal’ option, I’m sure their future plans for extra funds would have been discussed and the early repayment charge avoided.
The problem we have here is that most clients need advice, even when it comes to a straightforward remortgage or product transfer but they don’t always realise it.
Lenders have invested heavily in technology and now encourage the clients to take a new deal online.
I understand the size of the direct-to-lender product transfer market is in the tens of billions, and no doubt a large chunk of that is consumers not taking advice, therefore potentially leaving themselves open to mis-buying.
To minimise the risk of poor consumer outcomes, my suggestion would be that all customers should be required to take advice from their lender or a broker before effecting any mortgage, including ‘simple’ product transfers.