Changes to mortgage advice rules proposed to encourage consumer choice

Changes to mortgage sales requirements which could give people more choice and help them find the right deal have been proposed by the City regulator.

The Financial Conduct Authority’s proposals aim to make it easier for firms to present a range of mortgage options to consumers without giving regulated advice – as well as requiring advisers to take account of price when choosing between suitable mortgages.

The FCA said many consumers are overpaying for their mortgages, even when they get advice.

It said that, where a mortgage adviser recommends a mortgage which is not the cheapest of those that meet the customer’s needs and circumstances, they will now be required to explain why any cheaper mortgage has not been recommended.

This should mean more consumers understand how price has been taken account of in the recommendation they are given – and give them an opportunity to challenge the recommendation.

The FCA also said people who would like to buy a mortgage on an “execution-only” basis without advice find it hard because they are diverted to advice and because execution-only sales channels are not always easy to use.

Some rules around mortgage advice are currently acting as a barrier to new tools being developed which could help customers choose and buy a mortgage, the regulator said.

It is proposing to change its rules to make it clear that tools which allow customers to search and filter available mortgages are not necessarily giving advice.

It will also be clearer that some forms of interaction, such as firms helping consumers with their applications, do not require advice.

The FCA is consulting on the new rules until July 7 and will publish its feedback and final rules around the end of the year.

The proposals are part of wider work by the FCA to make sure people have the information and support they need to make informed choices about how they buy a mortgage, and help them get good value from advice.

It has previously found that a significant minority of customers – around 30% – fail to find the cheapest mortgage for them.

It has been looking at ways to making it easier for people, at an early stage, to identify for which mortgage products they qualify and to assess and compare those products before taking out a 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.”

UK Finance director of mortgages Jackie Bennett said: “The FCA’s proposals provide helpful clarity on the boundary between execution-only sales channels and mortgage advice.

“This should help ensure that firms can easily provide factual information to borrowers who opt to go through the execution-only route, helping them to choose or switch product quickly and efficiently. It will also support continued innovation, particularly in digital channels.

“The overwhelming majority of new loans are likely to continue being sold under an advised process, during which customers take part in a lengthy interview with the onus being on the lender or adviser to ensure that the mortgage is suitable for the borrower’s needs.

“UK Finance will be responding to this consultation in due course and will continue working with the FCA to make it easier for customers to choose the right product for them.”

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