Room for improvement in mortgage advice, says City watchdog

10th July 2015


A mystery shopping exercise undertaken by the City watchdog has found there is still room for improvement in mortgage advice a year after stricter lending criteria came into force.


Following the tightening of affordability rules last year under the introduction of the Mortgage Market Review (MMR), the Financial Conduct Authority (FCA) has undertaken a review of mortgage advice.


It found that most mortgage providers were giving borrowers suitable advice and there was no evidence of ‘systemic customer detriment’ there was further work to be undertaken.


It found that some firms were not obtaining sufficient information regarding customers’ borrowing needs and their circumstances before they made mortgage recommendations.


A total of 59% of advice received by consumers was assessed as suitable, and only a small number of cases assessed as ‘demonstrably unsuitable’, the regulator found the basis for 38% of recommendations was unclear.


It also found that consumers focus on the initial monthly payment of their mortgage ‘to the detriment of other factors’ and this monthly figure can dictate whether they think a mortgage is a good deal or not.


Linda Woodall, acting director of supervision at the FCA, said: ‘A mortgage is a significant undertaking for anyone. It is vital that customers are able to get suitable advice and a positive experience when deciding on their options. Some firms were able to provide this, but not all.’


She said there was ‘still scope for improvement’ in the mortgage advice sector.


While the review found that many lenders had made the effort to deliver advice for the first time by investing in systems and staff, some lenders were resulting on ‘highly structured processes.


‘This often resulted in lengthy, stilted and repetitive conversations with consumers which limited the adviser’s ability to engage effectively and properly assess needs and circumstances,’ said the FCA.


In contrast, other firms delivered advice with ‘no structure, resulting in inconsistent quality of advice and a higher chance of unsuitable recommendations’.


Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said: ‘Fully adopting the principles of MMR was always likely to involve an extended period of adjustment…Clearly there are areas of advice and distribution that need to be strengthened…The principles of customer focus underpinning the MMR are widely supported by the industry and it is the right time to ask what more needs to be done to improve its delivery.’


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