Under its competition remit, the FCA is concerned to ensure that the mortgage market functions effectively, creating benefits to consumers, and has announced its market study terms of reference (following on from announcements early in 2016 - see FS 16/3).

The first charge residential mortgage market is a large sector and any potential consumer detriment can have a significant effect in this space. From figures provided in MS16/2, new lending volumes appear to be on an upwards trajectory slightly above the £60,000m mark (see page 7). Meanwhile, as the proportion of sales that are intermediated and advised are increasing (following the Mortgage Market Review initiated in 2009) (see page 9), the Financial Conduct Authority needs to assess if this affects consumer decisions for consumer benefit. Firms will want to watch the interim report expected in Summer 2017 and be aware that further regulatory change may need to be factored into future business and IT plans.

The mortgage market study, focusing on the first charge residential mortgages sector, will have two broad questions:

  • at each stage of the consumer journey, do the available tools (including advice) help mortgage customers make effective decisions?
  • do commercial arrangements in the supply chain create conflicts of interest or misaligned incentives that cause detriment to the consumer?

The study will look at each stage of the consumer journey and will consider touch points such as the decision to take advice or not, choosing a provider or an intermediary, the choice of product, as well as decisions or reasons why decisions are not made. This will be considered in the lifecycle of the mortgage – such as house purchase, re-mortgage, or switching provider.

Following generally pervasive themes, this will consider, for example:

  • Are consumers empowered to choose on an informed basis?
  • Can technology provide better solutions?
  • As the market and distribution methodologies have developed, are the FCA’s rules fit for purpose through this new prism?

After the interim report in Summer 2017, the FCA should give its final report early in 2018. It may take steps to stimulate effective competition – such as rule-making (or removing), guidance, industry self-regulation, firm-specific remedies, or enforcement (including reference to the Competition and Markets Authority).