Mortgage rule change could help improve borrowers’ choice
Customers could benefit from more choice in how they buy a mortgage after a major review by the financial watchdog recommended changes to the way home loans are sold.
The Financial Conduct Authority (FCA) wants to make it easier for mortgage firms to make innovations that will help potential borrowers make more informed choices and get better value deals.
In particular, it wants to make clear the distinction between getting advice when taking out a mortgage and going through the so-called ‘execution-only’ process, where a consumer opts for a specific deal without the help of an adviser.
Buying a mortgage on an ‘execution-only’ basis can cause problems, the FCA identified as part of its ongoing Mortgage Market Study, because customers are often directed to advice and the sales process is not always easy.
But it also raised concerns many customers who were receiving advice were still overpaying for their mortgage.
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, the director of UK Finance, the body which represents the mortgage industry, explained the majority of new loans would still continue to be sold under an ‘advised process’ where customers take part in a lengthy interview with the focus being on the lender or adviser ensuring the mortgage is suitable for the borrower.
But, by clarifying the boundary between execution-only and mortgage advice, firms should be able to provide the means for people to switch products quickly and efficiently.
Meanwhile Ross Boyd, from mortgage switching platform, Dashly.com, said it was encouraging the FCA was ‘fully embracing’ the potential of technology within the mortgage sector.
He added: “Our view is that the mortgage market needs a ‘tech and touch’ approach, with tech empowering customers to identify mortgage savings in a way never before possible, while brokers are on hand to provide real-life reassurance and the human touch.”
He added: “Brokers always have to justify their choice of recommendation and it’s well known in the industry that cheapest is not always best.
“Multiple factors have to be taken into account when considering a mortgage, not just its rate.”
Article by Kate Saines for www.whatmortgage.co.uk