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Regulator proposes changes to mortgage advice rules to encourage consumer choice

Owain Thomas
Written By:
Owain Thomas

Changes to mortgage advice rules which should help give consumers more choice in how they buy a mortgage have been proposed by the regulator.

Under the proposals, when an adviser recommends a mortgage which is not the cheapest to meet the customer’s needs and circumstances, they will have to explain why any cheaper mortgage has not been recommended.

The Financial Conduct Authority (FCA) found that many consumers overpay for their mortgages, even when they get advice.

“We want advisers to explain their rationale where they have not recommended the cheapest of the suitable mortgages available,” the FCA said.

“This should mean more consumers understand how price has been taken account of in the recommendation they are given and give them an opportunity to challenge the recommendation.”

A study by the FCA revealed around 30% of consumers could have found an identical or better mortgage that was cheaper than the one they bought.

‘Levelling up quality of advice’

The regulator offered an example where an adviser may decide to recommend that a two-year fixed rate mortgage with no upfront fees meets the customer’s needs. But because the cheapest of these is offered by a lender known to have a slow speed of service and the customer prefers an offer quickly, the adviser may recommend the next cheapest mortgage.

“It is in these cases, that the explanation must be given and recorded,” the FCA said.

“We think this gives the customer a chance to challenge the recommendation, as well as levelling up the quality of advice to the good practice already seen in the market.”

Encouraging execution-only

The proposals also aim to make the execution-only route easier for consumers.

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

Changes include amending its rules to make 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.

Jackie Bennett, director of mortgages at banking and financial services trade body, UK Finance, said: “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.”