We now find ourselves with just one week left to respond to the FCA’s Discussion Paper on the future of the mortgage market, and I want to stress how critical it is that every advisory stakeholder makes their voice heard before the deadline date for responses on the 19th September.
This is not one of those FCA papers we can afford to ignore, because the direction of travel we have seen over the summer, and to some extent, hinted at in this paper has profound implications for the very core of what advisers do - delivering advice, ensuring suitability, and securing positive outcomes for clients.
In that context, the timing of recent figures out of on mortgage affordability could not be more relevant to this debate. Its figures show that for many borrowers, particularly those who have purchased in recent years, the monthly mortgage repayment burden is now close to half of their gross salary.
On that metric, Moneyfacts says borrowers are at the toughest point since the 2008 financial crisis. The average house price stands at £269,000 - seven times the average wage of £37,600 - and even though there are some cheaper rates available compared to six-12 months ago, the reality is that affordability remains a huge challenge.
At today’s best two-year fixed rates at 90% LTV, borrowers are still spending nearly 40% of their gross income on mortgage repayments. That is a very significant portion of household finances, and it might leave borrowers with little margin for error.
Set against this backdrop, the idea that it should somehow be easier or more acceptable for consumers to arrange their mortgage without advice - through execution or direct-only channels - should concern every adviser.
The risk is plain: with mortgages taking such a large share of income, when it comes up for renewal, choosing the wrong mortgage product for the next two/three/five years may not be a minor misstep, it could have a considerable and negative impact on a household’s financial wellbeing.
If affordability is this stretched, then a product that is not right for the borrower’s circumstances could make an already difficult situation, worse.
Yet that is exactly where the discussion seems to be heading. Instead of doubling down on the positive role of advice, and reinforcing the value advisers bring in helping consumers navigate these financial pressures, the regulatory mood music is giving comfort to the idea that execution-only is somehow a better answer for many borrowers.
But it is not. If we encourage consumers down direct/execution-only routes, they may choose a product which feels like it’s ‘right’ for them or the ‘best option’ but at what cost? Well, certainly at the cost of losing the holistic benefits of advice.
They lose the chance for a professional to review their whole financial situation, as Consumer Duty expressly calls for, to access an entire market not just one lender’s product range, and to potentially make savings not just on their mortgage but across other products and protection policies.
Think about how much can change in the years since a mortgage was last arranged. Employment, income, family circumstances, health, protection cover, insurance needs - advisers are there to revisit all of this at the point of remortgage, and indeed before this, to make sure the consumer is in the right place for the years ahead.
Without that intervention, the borrower is left with a purely transactional process. They may secure a ‘deal’, but it may not be the right one. They may miss opportunities to restructure their term, to switch product types, to consolidate borrowing in a way that works better, or to improve their protection coverage.
That is not a better outcome for the consumer, and – as many colleagues and peers have already pointed out - it runs directly counter to the FCA’s own language on Consumer Duty.
The Moneyfacts data makes it clear that many borrowers are having to use large parts of their income to service their mortgage. If ever there was a time to emphasise the importance of professional advice, it is now.
Advisers are the ones who can help clients manage affordability pressures, find solutions tailored to their circumstances, and avoid potentially costly mistakes. Diluting that role in favour of direct/execution-only does nothing to help consumers - it only helps lenders reduce their cost base and more than likely, opens the door to further dual pricing.
That is why the next couple of weeks matter so much. We have until the 19th September to respond to the FCA’s DP, and I would urge everyone in the advisory community to do so.
Be forceful in making the case that advice should not be viewed as a nice to have, an optional extra, but an essential part of ensuring good outcomes in the mortgage market. We need to put the regulator back on course, away from a path that prioritises lender cost bases over consumer protection, and towards one that recognises the unique and indispensable role of advice.
We are at a point where affordability challenges are as acute as they have been for almost two decades. Advisers are the safety net that prevents consumers from falling into unsuitable mortgages or neglecting their wider financial needs.
The DP is one of a small number of opportunities therefore to remind the regulator of that fact, and to make sure the future mortgage market is one that places advice at its centre, and as a result, works for consumers first and foremost.
