"If, up until now, you’ve only given Consumer Duty a cursory look, then you’ll need to concentrate far more on it over the next five months."
The start of our 2023 financial year is just a few weeks away, and there is already plenty coming down the tracks that will shape our business lives, including some major changes which will fundamentally alter our industry. What might these be, and which potential market shifts will make the biggest difference to advisers? Here’s a number we should all look out for:
Meeting your Consumer Duty
Regulation has a monumental impact on our sector and the working lives of all advisory firms, so it seems right to start with the most significant regulatory undertaking for all authorised firms in 2023 – the Consumer Duty.
The new measures are not due to be introduced until the last day of July, but clearly the regulator wants all firms to be ready. Last year, all firms needed to have an implementation plan in place, and just recently the FCA gave some feedback on work it had done on the preparedness (or otherwise) it had seen.
As you might have anticipated, the regulator has not given the industry an entirely glowing review in terms of its plans, what they contained, and how firms will make sure they are ready for the Consumer Duty. There has been a suggestion that some plans were too superficial and too reliant on existing processes and procedures – in other words, some firms believe they don’t need to do anything, and they’ve already got it covered.
That is highly unlikely to be sufficient, and so the FCA has sent firms letters outlining what it expects of them, and why it believes The Consumer Duty is the answer to many problems it sees in different sectors.
Effectively, doing nothing is not an option, and we are obviously working with our AR firms to ensure they are fully aware of the FCA’s (and our own) expectations for Consumer Duty adherence. At our Annual Conference earlier this month, we ran a full session on Consumer Duty specifically, in which we provided practical updates in this area, plus of course we work with all our member firms to ensure they are operating compliantly.
This is a big workstream for the FCA, and it is not an area in which mortgage advice firms can simply live in ‘blissful ignorance’. If, up until now, you’ve only given Consumer Duty a cursory look, then you’ll need to concentrate far more on it over the next five months.
A big drop in fall throughs?
According to data from the House Buyer Bureau Index, the ‘Mini Budget’ and its immediate aftermath, was responsible for the highest number of property fall-throughs in the last five years, costing more than £300 million in the process.
Aborted transactions have been a major headache for as long as I can remember, but clearly post-Covid/lockdown, not only has the time it takes to get to completion increased, but in doing so, there is also a greater chance of a transaction not making it to the end.
The ‘Mini Budget’ simply exacerbated this because it meant mortgage products were pulled, rates were increased substantially, and those potential purchasers who though they had the loans to get the deal done, found out that they didn’t or found that the affordability criteria had shifted to a point where the loan they needed was now deemed unaffordable. Hence, a huge spike in fall throughs – plus many might have simply thought it wasn’t the time to be buying given how fraught the entire economic situation was looking.
In calmer markets, the number of fall-throughs is still hugely problematic. No-one in our sector gets paid until we complete, so there is a huge amount of resource and cost wasted when this happens so frequently.
I’m aware of plenty of action within the conveyancing sector to try and bring greater certainty to the process, to ensure that as few people as possible are left high and dry, and hopefully this is the year when those plans bear fruit. Greater use of Open Banking, more digital ID use, better upfront information when a property is marketed rather than having to wait weeks to find out if there are any issues, should add up to faster transaction times.
This has been a problem for the industry for way too long and let’s hope this is the year when we finally get tangible action that will give every single transaction the best chance of completing.
Goodbye Help to Buy
Help to Buy has been a mainstay of our industry for the best part of 10 years, but the latest iteration of the Scheme has all but finished. The Government Guarantee Scheme received a stay of execution at the end of 2022, but not Help to Buy, and this will have a significant impact on the new-build market and the ability of first-time buyers to buy these properties.
There are a number of potential Schemes which are already up and running and being touted as alternatives – perhaps most notably, Deposit Unlock – but the big question is whether they can fill the gap left by Help to Buy and all its Government might. Will the developers want the Government to create another Scheme or could it simply put its considerable influence behind Deposit Unlock – currently there are only three lenders wholly participating.
What would also help would be greater product numbers and ongoing lender appetite in the high LTV space? 95% LTV product numbers have improved in recent months but are still not at a pre-‘Mini Budget’ level– first-timers rely on these products in order to get on the ladder, especially at a time when the cost of living crisis and increases in rent, make saving for a deposit even harder.
If it takes some time for Deposit Unlock to be a genuine Help to Buy replacement, then a much healthier high LTV sector may go some way to supporting the large number of potential first-timers who only have small deposits into this market.
