To assist advisers, Mortgage Brain developed a cost column to show the cheapest deals in compliance with this guidance, suggesting a need to point brokers in the right direction.
So this week, Mortgage Solutions is asking: Do you feel confident that you can accurately give advice to comply with the FCA’s cheapest rule?
It is now relatively easy to identify the cheapest mortgage product for a given set of requirements.
The sourcing platforms and criteria filter applications all combine to provide advisers with powerful research tools. However, an adviser’s experience and knowledge of the real lending world can play just as much an important part of the advice process.
Quite often, there are very good reasons why certain situations lead the adviser to some other product.
How flexible is their underwriting on properties that have some issues – asbestos, flood risks, short leases or high rise flats? What is the service of a particular lender like?
Once you have used plenty of filters to find the lowest overall cost product, you can then add what you know about a lender’s service.
The Covid crisis has compounded some of the potential servicing issues for lenders, with many staff working remotely, and all of the communication issues that brings. Can you actually talk a case through with them quickly and easily? Can they get an urgent case through quickly?
Another factor that Covid has brought into focus is whether the applicants will still be working or have the same decent incomes when their new mortgage product ends. If not, what will their options be if the lender has a high standard variable rate?
Do they offer decent products to transfer to internally? Will they be competitive? Historical lender knowledge plays its part here.
Many borrowers cannot see beyond a few years and consider what their lives will be like, but advisers know the effects of difficult life changes.
The ‘cheapest mortgage’ requirement does not insist that only the cheapest mortgage is the best solution to a client’s needs. Instead, it only requires the client to be given an explanation as to why an alternative ‘cheaper’ product has been recommended.
Usually, this is easy to do and justify.
I’m with Sesame so I’ve been using Mortgage Brain’s cost column for a while. I know it works differently than it does for directly authorised firms because we have to recommend the cheapest mortgage from the FCA column.
We are able to reject that, as long as we have a reason why we’ve rejected it and chosen something else. We’ve always done it.
Sesame have had it up and running for going on two years. We were made to do it on the basis that it would come in, so Mortgage Brain was always set up for that, they’ve just slightly tweaked it now.
Something came up the other day which I thought didn’t look right. I don’t know what happened in the end and it seemed to sort itself out, but it is pretty simple.
Because I’ve been doing it for so long I don’t have any problems but you’re more likely to have DAs recommend certain lenders whereas under a network we’re always reviewing our work.
It was an easy transition to start looking at the cheapest mortgage based on overall cost over a specific time, especially when I’m using the system. We can still use our discretion we just have to have a plausible reason why a certain lender or mortgage has been discounted.
As part of our appointment with our clients we will always ask what their priorities are.
For some, that may be the lowest monthly payment, for others it will be the least amount of fees, or it might be the overall cost over the initial period.
As long as we are doing our job and finding out what is important to the customer, we are confident we will always comply.
I feel that the rule does leave room for error, however. If you are applying for a mortgage and adding the fee to the mortgage, you’re still paying that fee.
Part 3ii of the rule states ‘includes any product fee or arrangement fee if the customer proposes to pay that fee directly rather than add it to the sum advanced under the contract’. Why are we not taking fees that are being added on to the mortgage into consideration?
The rule has not made us change the way we search for mortgages as we find out what our customers objectives are and advise them accordingly.
Mortgage Brain’s partnership with Sesame with be a helping hand for many advisers, but it isn’t necessary. If you are qualified to give advice on mortgages, it is your job to understand the regulations.
Most advisers will be very aware that the cost of a mortgage will typically be high on a priority list for any borrower.
If you asked most people what kind of deal, they want they’d be highly likely to say that they want the cheapest before then delving into the wide range of product options on offer.
As a result, I think that it’s always been impossible to divorce the search for a mortgage from the price on offer and this is therefore not something that will be alien to advisers.
In fact, demonstrating to customers how one product may prove to be cheaper than another when factoring in other costs will be second nature to advisers and only helps to underline the value that a broker adds.
It’s also of great value and standard for most to be able to build other factors into the equation, including service and criteria elements that will clearly have an impact, depending on the personal circumstances of the borrower.
That can clearly remain part of the recommendation but will require the correct record keeping to identify the reasons that may have made a slightly more expensive deal the more suitable option.
This approach will not be new for many but the development of tools in sourcing systems will of course help ensure that the right detail is kept to back up the product choice and assist the record keeping as well as offering a consistent approach.