What is the requirement for mortgage lenders under the new rules?
The FCA is proposing to remove the requirement for customers to positively elect to proceed with an execution-only sale where there is interactive dialogue with the firm.
If the FCA goes ahead with the rule change, it says lenders must "clearly inform customers that it will not assess whether the mortgage, or any change to it, is suitable for them and that they will not benefit from the protection of the rules on assessing suitability".
It added that firms will be expected to "judge and control" for where a conversation or transaction meets the threshold for regulated mortgage advice and must consider whether its processes are appropriate to identify execution-only customers for whom advice may be necessary to avoid foreseeable harm as part of meeting its obligations under the Consumer Duty.
The FCA is not planning to amend the rules which require advice in circumstances which may involve a higher risk to consumers and where advice is likely to be more important. These circumstances include when the main purpose of the loan is debt consolidation, when exercising a statutory ‘right to buy’ a home, shared equity arrangements or for lifetime mortgages.
The regulator also stressed that it is not proposing to amend the prohibition on encouraging customers to opt out of receiving advice and plans to maintain the requirement for customers to positively elect to proceed with an execution-only sale where they have rejected advice.
'Proposals may affect volume of advice being given', FCA says
Based on current market data the FCA says it is "confident in the supply and availability of advice for those consumers who wish to use it" and does not expect this to change if the proposals were introduced.
However, it admitted the "proposals on mortgage advice may affect the total volume of advice being given", instead arguing that the change "would allow intermediaries to add value by focusing on consumers with more complex needs and those who opt to seek advice".
This is despite its own research (Occasional Paper 34) revealing that consumers that used brokers following MMR — and that previously would have purchased via a direct advised sale — were estimated to save money from lower near-term borrowing costs.
In addition, recent Bank of England research found brokers enable smaller lenders to reach more customers, while previous structural models of the mortgage market have found that the presence of broker intermediation can improve overall outcomes for consumers.
However, the FCA also noted controversial Bank of England research which suggested that brokers may ‘steer’ borrowers towards mortgages with short fixed terms to increase fees.
Industry views
Financial Reporter sought the views of brokers and law firms on the proposed changes.
Ash Daniells, legal director for Kennedys, commented: "The intention to simplify rules around mortgage advice muddies the water and will lead to problems for advisers further down the line. The aim is to provide consumers with more choice in how they deal with their mortgage. Historically we see problems arise when consumers are given more choice and advisers find themselves caught between a rock and a hard place. Do they follow the instructions of their client, even if they disagree with the approach? Is it then fair that they face a professional negligence claim when things eventually go wrong, despite it being the consumer’s choice? It, unfairly, puts advisers under a great deal of pressure.
"Some of the specific proposals will inevitably cause problems. For example, the FCA has proposed removing the requirement for a full affordability assessment when a consumer reduces the term of the mortgage – to give consumers the power to reduce the term when appropriate. What if circumstances change and the reduced term negatively impacts the consumer financially. Despite the adviser not being required to undertake a full affordability assessment, they will likely be criticised for failing to do so. I struggle to understand how the proposals support the intention of the FCA’s Consumer Duty and suspect we will see changes to the proposals once the consultation ends in June."
Mortgage specialist Adam Hosker said: "The FCA is bringing back execution-only mortgages, scrapped a decade ago. Today, it champions advice for consumer protection and as a by-product shields mortgage firms from AI disruption in the short-term. However, tomorrow, it steps back, letting consumers make uninformed choices with less consumer protection, while AI sells mortgages without an attempt to give mortgage advice."
However, speaking on X, independent mortgage adviser Jane King said: "Surely its a bit like this now. If you want advice you go to an adviser and if you don't then you do it online or speak direct with a bank/building society. Not sure what is changing.
"Trend forecasters are saying that people are moving away from their screens now and are looking for human assistance for large transactions. No panic here."
