"Could this type of product design be construed as an unfair contract?"
The FCA's latest Mortgages Market Study report has been accused of promoting execution-only mortgage sales and the AMI says a move to allow execution-only sales to re-enter the mainstream market "is a mistake, and one that will lead to the FCA’s own Mortgage Market Rules on advice being gamed".
In its latest quarterly bulletin, the AMI said a rise in execution-only sales would place increased pressure on both intermediaries and lenders to generate volume sales through this channel, "particularly as it is lower cost for lenders and brokers to sell".
It has warned that mortgage product manufacturers could begin to design up front offers that look attractive to customers, "but which may include penalty clauses that bite at the tail end of the deal period, raising the possibility of accusations of unfair contracts".
The Association linked the risk to the experience of discount rates sold to sub-prime borrowers in the run into the financial crisis.
In its bulletin, the AMI said: "Could this type of product design be construed as an unfair contract?
"There is a real challenge here, reliant on whether regulators in the future are likely to consider a scenario such as this worthy of customer compensation. Much will depend on whether the FCA and/or Financial Ombudsman Service deem lenders and/or intermediaries to be deliberately generating volumes on an execution-only basis to keep costs low and whether the bulk of this volume should actually have been advised."
