FCA introduces new rules promoting execution-only mortgages

Rozi Jones
3rd February 2020
FCA new

Despite concerns from intermediary firms and trade bodies, the FCA has introduced new rules which make execution-only sales channels easier to use.

The regulator argued that consumers looking to buy an execution-only mortgage are often "diverted to advice" and that many borrowers are overpaying for their mortgage, even after receiving advice.

It has therefore raised the trigger points at which firms need to divert customers from an execution-only to an advised channel and will "encourage firms to make execution-only sales channels easier to use".

In its policy statement, the FCA said the changes "make it easier for firms to present options to consumers without giving regulated advice".

Additionally, the rules will require advisers to explain why they have not recommended a cheaper mortgage, "where other products meet the customer’s needs and circumstances".

In its final rules, the FCA admitted that intermediary firms and trade bodies "had some concerns about the proposal to make execution-only sales channels more accessible, particularly the proposal to remove prescriptive detail from execution-only sales policy".

Advised mortgage sales increased from 70% to 97% of mortgage business following the Mortgage Market Review in 2014.

However recent research from UK Finance found that 44% of product transfers were on an execution-only basis in Q3 2019.

311,400 homeowners switched product with their existing provider in Q3, an increase of 7.5% year-on-year. Of these, 175,900 were on an advised basis and 135,500 were on an execution-only basis.

Nearly a quarter (23%) of mortgage intermediaries believe that the FCA's rules will lead to an increase in direct business, according to research from Paragon. Of these, 44% believe the impact on their own business will be significant and 36% think it will present a threat to the broker market.

In October 2019, the Association of Mortgage Intermediaries warned that a shift to execution-only sales could cause a "number of worrying potential unintended outcomes" including the potential for future compensation claims.

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".

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