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Using price alone, the FCA appears to have confused cheapness with value for money – Marketwatch

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  • 10/04/2019
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Using price alone, the FCA appears to have confused cheapness with value for money – Marketwatch
The Financial Conduct Authority’s (FCA) final report from its Mortgages Market Study (MMS) picked out several key issues which the regulator wanted to address.

 

One of those points was the limited range of lenders that many brokers used, finding that those brokers who regularly used more lenders were more likely to find the cheapest mortgages for their clients.

This week, Mortgage Solutions asked our panel whether they agreed with the regulator on this issue and how they would address it.

 

 

 

Jeni Browne, sales director at Mortgages for Business

 

 

The FCA’s Mortgages Market Study suggested mortgage brokers do not use the whole market but advisers pre-select or reduce their panel based on the incentives they receive from the lender.

This statement is vastly unjust, short-sighted and frankly, insulting.

Not only in this highly regulated market do advisers have to evidence the products suitability for the customer, they are often monitored on the spread of lenders which they have used.

Borrowers are more informed than ever and can access price comparison sites at the touch of a button.

Brokers rely heavily on repeat business and referrals, so therefore giving the best advice is paramount to a broker’s reputation and success.

Customer satisfaction and trust would quickly erode if we pushed unsuitable products onto customers.

The variation between lenders’ broker commission is marginal, so the potential reputational risk of providing an unsuitable product far outweighs the financial gain from incentive hunting.

It’s worth noting that the ‘best’ lender will not necessarily be the cheapest.

There may well be other potentially critical factors such as client and product eligibility, fees and lender speed of service to name but a few.

Through purely using price as a basis for comparison, the FCA has confused cheapness with value for money.

These differences have been overlooked in this report.

While it’s highly important to ensure the broker market is providing value for money and fit for purpose products for consumers, it seems like the FCA are off the mark with its findings in this regard.

 

 

Sebastian Murphy (left) and Rory Joseph (right), head of mortgage finance and director of JLM Mortgage Services

 

You can’t help but feel that the FCA is concentrating on the wrong areas.

When it comes to panels or the number of lenders used by advisers, the regulator itself does not really discriminate between what we might describe as whole of market and indicative whole of market.

Plus, of course, the average person in the street has no idea that the former might mean over 100 lenders and the latter under 10.

Perhaps where it should be focusing on is actually highlighted in the report itself.

According to it, one in four people using an estate agent financial adviser – who are nearly always using a limited panel – felt strong-armed into using them.

This is a theme that appears to repeat itself time and time again.

We’ve lost count of the number of stories where clients are told they ‘have’ to use the estate agent’s adviser or they will be ‘less likely’ to get the property they want.

Surely this is a greater issue for the FCA to be tackling, especially when you consider this made up seven per cent of all purchases in 2018?

There also needs to be an understanding of why advisers might have their ‘go to’ lenders, particularly in niche areas of the market.

New-build advisers, for example, are likely to use those lenders who specialist in this area – the list goes on.

Why would it be considered wrong for advisers to use a smaller number of lenders when they’re working in niches and they are good at this type of lending? This is all part of the adviser’s skill-set.

 

 

 

Gareth Herbert, sales director at Mortgage Advice Bureau

 

Intermediaries must recommend the most suitable and affordable mortgage regardless of how many lenders they have to choose from.

Every customer’s needs are different which is why advisers gather soft facts as well as customers wants and needs, always working within their best interests to ensure they receive first-class service and the most suitable mortgage.

Moving home, purchasing your first home, or buying to let is not the same as shopping online for your groceries or a new credit card.

Intermediaries have a vital role to play in what is likely to be the biggest financial commitment any given person is likely to make – this means professional advice is a must.

Over the last three months, Mortgage Advice Bureau advisers have used more than 90 lenders. Some of them are niche and very specific to a customer’s needs, while others focus primarily on providing customers with the cheapest rate as their main differentiator.

At times, the customer’s circumstances mean they cannot get the cheapest mortgage, but they will be recommended a product that best serves their individual needs.

It is a snapshot in time and ongoing reviews are also essential as life cycles change.

First and foremost, looking after your customer more than the occasional call needs to be a main stay of any successful intermediary business.

The new body (SGFB) also needs to consider carefully the next steps following the final report.

We embrace and understand that innovation can help increase the choices customers have when they research, receive advice, and transact.

Therefore, intermediaries must embrace technology to ensure they always stay relevant to all consumers.

 

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