Regulation

FCA changes mortgage advice rules

Under the changes, advisers will be required to explain why they didn't recommend the cheapest mortgage.

Rozi Jones
|
7th May 2019
FCA new
"The FCA’s proposals provide helpful clarity on the boundary between execution-only sales channels and mortgage advice."

The FCA is planning changes to its mortgage sales rules to encourage consumer choice and provide clarity on the boundary between execution-only sales channels and mortgage advice.

Under the changes, if a mortgage adviser recommends a product which is not the cheapest, they will be required to explain why the cheaper mortgage has not been recommended.

The FCA said it has identified a number of ways its advice rules are acting as a barrier to the development of new tools to help customers choose and buy a mortgage.

As a result, the changes aim to make it clear that tools which allow customers to search and filter available mortgages are not necessarily giving advice. It will also be clearer that some forms of interaction, such as firms helping consumers with their applications, do not require advice.

Additionally, the FCA is also making changes to the standards around execution only policies.

The proposals are one part of a package of remedies from the Mortgages Market Study, published earlier this year, which aims to encourage innovation and make it easier for customers to find the right mortgage.

The FCA is consulting on the new rules until the 7th of July and is expected to publish its feedback and final rules around the end of the year.

Christopher Woolard, executive director of strategy and competition at the FCA, said: "The mortgage market is working well for most customers but we have identified some areas where our rules are acting as a barrier to innovation. The changes we’ve announced today will allow firms to develop products and services which can truly meet the needs of customers."

Jackie Bennett, director of mortgages at UK Finance, commented: “The FCA’s proposals provide helpful clarity on the boundary between execution-only sales channels and mortgage advice.

“This should help ensure that firms can easily provide factual information to borrowers who opt to go through the execution-only route, helping them to choose or switch product quickly and efficiently. It will also support continued innovation, particularly in digital channels.

“The overwhelming majority of new loans are likely to continue being sold under an advised process, during which customers take part in a lengthy interview with the onus being on the lender or adviser to ensure that the mortgage is suitable for the borrower’s needs.

“UK Finance will be responding to this consultation in due course and will continue working with the FCA to make it easier for customers to choose the right product for them.”

Nicola Firth, founder and CEO of Knowledge Bank, added: “We’ve always understood that brokers are not always able to recommend the cheapest rate to customers and that depending on criteria, it can often be a lender who is further down the sourcing tables that is a better fit.

"For this reason we give brokers the ability to produce their own case specific 'Evidence of Research' based on the criteria. This is date and time stamped with the broker’s and customer’s details on and which sits alongside their product sourcing results to show the bigger picture of why that recommendation was made to the customer.

"Compliance managers have told us that in the event of a complaint, there is a big difference between 'documenting' and 'evidencing' research. We have been pleased to be involved in the FCA’s recent study and understand that they welcome the innovation we have brought to the intermediary mortgage market with Knowledge Bank.”

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