The FCA has today published its Mortgage Rule Review timeline and roadmap, outlining its plans for reforms to the mortgage market.
The regulator has confirmed that it will focus on four areas: First-time buyers and underserved consumers, later life lending, innovation and disclosure and vulnerable customers.
In its feedback statement, the FCA also confirmed that it will not move forward with its plans to introduce 'enhanced advice'.
Earlier this year, the regulator proposed that certain products or borrower types who may have more complex needs could require ‘more’ from advisers in the form of enhanced advice. While the FCA had not decided what this might look like, the industry speculated that the proposals could mean extra qualifications or stricter requirements to advice on certain product/borrower types.
Today, the FCA admitted that "the idea to consider introducing an enhanced level of advice for specific borrowers was met with caution", confirming that it will "not take this idea forward but will use the feedback received as we consider options to deliver holistic advice".
Industry respondents felt that advisers regularly deal with a range of borrowing needs and that they already tailor advice based on their customers’ circumstances. Both industry and consumer groups thought that introducing an enhanced standard of advice risks creating a "two‑tier system".
While enhanced advice might offer benefits in high risk or complex transactions, many believed that similar outcomes could be achieved through mandatory Continuous Professional Development, updated qualifications and training, and better referrals, rather than new advice standards.
There was broad consensus that qualifications alone are not the best way to improve advice and there was minimal support for an enhanced qualification. Respondents thought an additional qualification would be costly, disproportionate and damage adviser retention and diversity.
The FCA has now moved towards a 'holistic advice' approach, stating that there was broad support for this amongst respondents.
Respondents highlighted the potential benefits to consumers, particularly in later life lending. Many considered that a more holistic approach would better address the full spectrum of customer needs and secure better outcomes, as customers would be better informed to make decisions.
However, there was no clear consensus on what holistic advice is and different opinions on what this should look like. Some thought that advice should consider all available mortgage options for a customer, while others advocated for a truly integrated approach that brings together lifetime mortgages, pensions and investment advice.
Respondents identified a number of barriers to achieving a holistic approach to advice. Many said there are regulatory silos, particularly between mainstream and later life lending, caused by the structure of MCOB rules and split qualification requirements. Other barriers mentioned include regulatory reporting requirements, retirement interest-only affordability assessments, and external standards which require some customers to get legal advice.
Respondents widely acknowledged that achieving truly holistic advice is complex and had differing views on how to achieve it.
Seb Murphy, group director at JLM Mortgage Services, commented: “FS25/6 has some clear positives for advisers. The FCA is right to step back from enhanced advice and to say it supports holistic advice. A two-tier system would have caused real confusion and risked pushing clients down the wrong path. That decision matters.
"There are also real opportunities here. A fresh look at later life lending, RIO affordability, interest-only options and how irregular income is treated could help more clients borrow in a sensible way. But none of this makes advice less important. It makes it more important.
"My concern is not what the FCA says it wants, but how this could play out in practice. Giving lenders more freedom on product design, disclosure and customer journeys must not lead to advice being treated as optional, or something to add later if problems appear. Talk of ‘tolerable harm’ and rebalancing risk needs to stay rooted in real outcomes for real people.
"If access is widened, advice standards must hold firm. Faster journeys and more choice are fine, but they need clear signposting to advice and strong checks for complex cases. Otherwise we risk repeating old mistakes, just in a more digital form.”
