FCA proposes changes to mortgage advice rules to encourage consumer choice

On 7 May 2019, the FCA published a consultation paper (CP19/17) setting out its proposals for changes to its mortgage sales requirements, the aim of which is to help give customers more choice in how they buy a mortgage.

CP19/17 contains proposals for changes to the FCA's mortgage advice and selling standards to address three harms identified through its mortgages market study (MMS). These relate to the FCA's own rules being a barrier for customers – restricting choice and effectively killing off execution-only sales.

According to FCA customers are sometimes overpaying for their mortgages, even when they get advice.
To address these problems, and to encourage competition, the FCA proposes to:

• Change its perimeter guidance in the Perimeter guidance manual (PERG) on mortgage advice to make clear that tools allowing search and filtering based on objective criteria are not necessarily giving advice. It will also more closely align it to the updated guidance on advising on retail investments, which was published in February 2018.  
• Permit more interaction with customers before firms are required to give advice.
• Make other changes that may help firms making their execution-only sales channels easier to use.
• Require advisers, if they recommend a mortgage that is not the cheapest of the mortgages meeting the customer's needs and circumstances, to explain why they have not recommended a cheaper mortgage.

Comments can be made on CP19/17 until 7 July 2019. The FCA intends to publish a policy statement with final rules in Q4 2019.

COMMENT
FCA found some uncomfortable facts in the MMS that will inevitably lead to FCA to push for more intervention.

The MMS found -in May 2018 – that 30% of customers had bought mortgages that could have been sourced cheaper – regardless of whether an adviser was used.   IT was inevitable that this finding would lead to regulatory intervention.  We await the final statement to see what is coming our way.

FUN FACTS
Internal product transfers account for 40% of all sales
The level of execution only sales has slumped to just 3%, as per graph above, but still one third of clients go direct to lender - as per graph below.