The BSA’s full response to the FCA Mortgages Market Study Interim Report can be found here
Regulatory stability and innovation
- In its interim report the FCA recognises that the mortgage market works well for the vast majority of consumers and that commercial relationships between lenders and mortgage brokers broadly work.
- After substantial change in recent years, lenders have settled into the new regulatory environment. This stability is enabling development and innovation.
- At this point we strongly believe the regulator should allow the market to develop organically as market forces are a natural driver. Regulatory intervention could have the opposite of the desired effect and slow down innovation and development.
Price and effective competition
- There is a theme throughout the paper, which suggests that price is the most important or only factor when choosing a mortgage is disappointing. Price is important, but there are a range of other factors, including speed and quality of service that are important too.
- The only winners in a price driven, commoditised market would be those lenders with the deepest pockets. Effectively competition, innovation and much needed specialist mortgage products would be eroded. Building Societies provide real competition in the market by offering niche mortgages alongside standard products. First-time buyers, the retired, the self-employed or those with more complex needs will find a mortgage to suit them at a building society.
- Building societies are making use of the transitional arrangements set out by the regulator to help existing borrowers. However we strongly agree that all existing customers should be treated fairly in this spirit the BSA in collaboration with UK Finance and The Intermediary Mortgage Lenders Association (IMLA) have reached a cross-industry voluntary commitment.
- The more serious concern is the number of borrowers who are unable to switch their mortgage once it is sold to a non-active, often unregulated entity. There are a number of regulatory barriers which make it challenging to assist these borrowers, including the affordability regulations from the Mortgage Credit Directive. Without understanding the profile of these mortgagors it is also difficult to assess lender appetite. BSA and its members will continue to work closely with the FCA to try and identify ways in which these barriers can be overcome.
Information provision: Helping consumers choose the right mortgage
- A number of technology solutions are/have been developed that provide additional information to intermediaries. BSA members are working closely with intermediaries to improve this process further through the development and launch of lender/intermediary platforms including multi-Decision in Principle platforms. These include more criteria and should help intermediaries and customers to gain a quicker and more accurate view of the lending choices available. Industry will continue to innovate and developments around open banking will enhance this. We strongly believe this development should be allowed to continue at its own pace and remain market-led.
- But, we are cautious about very detailed criteria information being provided in the public domain as this risks an increase in fraudulent activity and gaming of the system.
- We welcome efforts that help improve consumers’ ability to make effective choices by using technology further, bur have a long-held concern that price comparison websites are causing customers to simply choose the lender with the lowest headline rate. This may limit them to the products available from that one lender leading consumers to miss out on other mortgages which may better suit their needs. The way products are presented on these sites could increase bias as a result of sponsored lines that push consumers to a specific outcome.
- Many of our members support customers with more complex needs. This relies on manual underwriting and looking at each case on its individual merits. It would be very difficult to provide much more upfront information that would add value as much of the work is done at the underwriting stage.
- The FCA needs to be mindful not to champion a solution which encourages standardised criteria and discourages lenders who are providing valuable solutions for the large and growing cohort of customers who have more complex needs, such as the self-employed, first time buyers and self-builders.
- Building Societies have lead the way in innovative lending policies to help first-time buyers, self-builders, older borrowers, shared ownership and the self-employed. This type of product innovation to meet evolving customer-needs is valuable and certainly in line with the Government vision and should be encouraged.
Advice v execution-only
- Mortgage advice remains the most suitable approach for the majority of customers. However there are certainly customers who do not require advice when taking a mortgage who have by default been forced down this route as a consequence of the changes introduced by the Mortgage Market Review (MMR).
- Rather than undoing some of the work of MMR, a better approach would be to extend the existing execution-only provisions within the Mortgage Conduct of Business (MCOB). Lenders and intermediaries should be able to offer factual information and guidance through an execution-only process if the customer requires it.
- Customer convenience and changing consumer habits are relevant here. Provided customer protections are not eroded as a result, we would be support the development of online advice. More testing and analysis of technology solutions is needed to ensure the technology is fit for purpose and the advice standards are equal to that of a face-to-face or telephony interactions.