Lifetime mortgage fees probed over fears Covid may increase unsuitable advice
In a ‘Dear CEO’ letter to mortgage intermediary firms, the Financial Conduct Authority (FCA) said it is worried Covid-19 could push advisers to provide services in areas, such as lifetime mortgages, where they don’t have the relevant experience.
The crisis may “exacerbate the risk of unsuitable advice” within the sector, and consumers may seek to address any short-term financial pressures caused by the crisis without understanding any longer-term implications, the FCA said.
“We are also concerned that advisers seek to address their own income shortfalls by providing services where they may not have the relevant experience,” it added.
Next year the industry watchdog will examine fees charged and the how they are described to customers.
It was also warned lifetime mortgage advisers may be subject to further intervention and action if they have not made “necessary changes” based on concerns recently highlighted.
Three areas were recently singled out by the watchdog in a review of the sector: personalisation of advice, insufficient challenging of customer assumptions, and lack of evidence to support the suitability of advice.
Within the letter, the FCA said: “If we find that firms have not made the necessary changes to mitigate any previous harms we identified, we will consider further intervention and appropriate action.”
Within the letter, which laid out the “key risks” advisers pose to consumers and the wider market, the FCA said it will also examine charges and advice offered by second charge mortgage brokers.
The regulator further used the letter to warn mortgage fraud is an inherent risk within the sector, with firms being told they must have controls in place to prevent themselves being used by scammers.
Firms should be aware of cyber threats and be able to defend themselves effectively, the FCA said.
And firms should consider how Brexit and the transition period will affect them and their customers.