FCA: mortgage panels pose risk to competition

"Commercial relationships between different players in the sector's supply chain - in particular the use of panels - might give rise to competition concerns."

The FCA found that consumers still face challenges in making effective choices, particularly when it comes to assessing and acting on information about mortgage products, with intermediaries "being key to the process".

In particular, the FCA is concerned that commercial relationships between different players in the sector’s supply chain - in particular the use of panels - might give rise to competition concerns.

Respondents commented that smaller brokers may experience difficulties in accessing products to distribute from certain lenders because it is not cost efficient for lenders to distribute their products through very large numbers of brokers.

Lenders and lender representatives commented that some smaller lenders have had problems accessing bigger broker networks and feel pressurised to accept their terms. The comments also noted that large broker networks have significant influence over the market, because they control visibility and access to lenders’ products.

The FCA said that these issues may be more acute in some types of specialist lending, for example when there are strong existing relationships between broker networks and lenders.

The study found that some firms still need to make process improvements to help them consistently assess and record their lending decisions, and could be more proactive in making use of flexibilities and exceptions to the responsible lending requirements for existing customers.

The FCA said it found "no evidence" that the rules have prevented firms lending responsibly to consumer groups such as older borrowers and the self-employed, but agreed that "it is important that the mortgage market continues to develop a range of products that can meet their needs". 

It also found that there are opportunities to make more effective use of technology in the advice process, and that certain aspects of the regulatory framework might have a negative impact on competition.

The FCA will launch a new study Q4 2016 focusing on the differences in outcomes for consumers who obtain their mortgages through brokers compared with those who go direct to lenders, and the impact of increased intermediation in the mortgage sector on consumer outcomes.

It will also look at the impact of panel and other commercial arrangements between lenders, brokers and other players in the mortgage supply chain.

Christopher Woolard, Director of Strategy and Competition at the FCA, said:

“For millions of consumers a mortgage is one of the biggest financial transactions they will enter into in their lifetime so it’s encouraging to see firms embrace the spirit and the letter of our rules.

“At the same time, there appears to be more to be done to improve competition in the mortgage sector. Competition can play a key role in ensuring that the sector works well, delivering lower prices, better products and choice, and more innovation.

“Based on the evidence we’ve collected so far, we intend to launch a forward-looking market study later on this year, with particular focus on the roles played by intermediaries and panels.”