The Financial Conduct Authority (FCA) has issued a series of proposals which are designed to lead to more consumer choice and better consumer outcomes in the mortgage sector.
The first proposal is one to make it clear that firms that provide tools to allow customers to search and filter available mortgages will not necessarily be considered to have given advice. At the present time, around three quarters of new mortgages are sold via an intermediary.
Another proposal will allow firms to help customers with their applications, again without crossing the line into giving advice. The FCA’s current rules forbid consumers from taking out mortgages on an execution only basis where there is some form of interaction between that consumer and a regulated firm. However, the FCA says it has heard of firms who have interpreted this requirement in a rather extreme way, and it gave the example of a customer phoning a firm to seek assistance when their online application screen froze. Because this is an interaction, some firms may then have decided that the customer needed to proceed with an advised sale, rather than simply giving assistance with the technical issue.
The proposed new rules make it clear that firms are not duty bound to offer advice when the customer’s query concerns something that is ‘unconnected with regulated advice’, and examples of things falling under this definition include: providing support with an application, conducting ongoing case management, or providing generic information in response to customers’ queries. However, firms should consider that if a customer asks what product they should buy, even if a recommendation is not given, it is likely that the firm is giving advice.
Any mortgage adviser who recommends a mortgage which is not the cheapest of the available deals that could meet the customer’s needs and circumstances will now be required to explain why the cheaper mortgages have not been recommended. In practice many firms will already be doing this, however, it would appear that this concept has not been universally adopted. The FCA says its Mortgage Market Study found that around 30% of consumers could have found an identical or better mortgage that was cheaper than the one they bought, and that whether they received advice or not made no difference to the likelihood that they would end up with a more expensive deal.
The FCA says it is not proposing that advisers will be required to recommend the cheapest product in all circumstances, and gives an example of where if the adviser has experienced poor service from the top-ranking lender in the past, it may be appropriate to recommend the second cheapest mortgage instead.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:
“The mortgage market is working well for most customers but we have identified some areas where our rules are acting as a barrier to innovation. The changes we’ve announced today will allow firms to develop products and services which can truly meet the needs of customers.”
The FCA’s consultation on these proposed changes closes on July 7 2019, and feedback and final rules will be published around the end of the year.
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