The FCA has now published its interim report on the Mortgages Market Study. The study reviews the UK first-charge residential mortgage market and assesses the impact of changes brought in under the Mortgage Market Review.
The interim report discusses a number of positive findings in the way that the mortgage market is working. However the report also identifies certain issues, predominantly in relation to the lack of usable and comparable information available to consumers and intermediaries, where there is room for improvement. The FCA invites feedback on the report including the remedies it proposes which, if implemented, would have a significant effect on lenders and intermediaries in the sector.
Firms in the mortgage sector should be aware of the FCA’s findings so far in relation to the functioning of the market and the difficulties consumers experience in assessing options for mortgages. In particular, the report includes potential remedies proposed by the FCA which indicate the direction of travel of changes which may be implemented. The discussion of potential remedies in the interim report covers both practical remedies, which, for example, include information-sharing and data-gathering, and broader considerations, such as the application to lenders of the FCA’s rules and guidance on advice. Firms have until 31 July 2018 to give feedback on the questions raised in the interim report.
Remedies which require changes to the FCA rules and guidance will be consulted on formally however there are certain changes which may not need further formal consultation. The FCA intends to publish the final report around the end of this year.
The proposed remedies seek to achieve a mortgages market which is easier for consumers to navigate and in particular enables consumers to find, or switch to, the mortgage with the best value for money by using a range of available tools. The key points covered by the proposed remedies are:
enhanced services so that consumers have better information allowing them to compare mortgages and intermediaries easily, including better and earlier information on eligibility;
wider range of tools giving consumers more choice about support they need so that consumers who do not need to receive advice are not receiving advice unnecessarily;
making it easier for consumers to switch to a better deal for example where the consumer's current mortgage arrangements pre-date the financial crisis, possibly by means of voluntary agreement with industry participants; and
making changes to regulatory reporting so that firms have to report sales data on internal product switches and performance data on mortgage books sold to unregulated entities to help the FCA meet its statutory objectives.
Lenders in particular should be aware that the FCA intends to encourage the development of technological tools to help consumers choose the type of mortgage and the type of service they need. For such tools to be effective, lenders will need to share their information with intermediaries, and potentially other third parties. If such innovation develops, lenders may also need to reconsider their own direct offerings and whether or not such offerings are still competitive.
In addition, while the study does not find that commercial arrangements between lenders, intermediaries and other third parties cause consumer detriment this is an area that FCA will keep under review. The FCA especially notes the potential anti-competition effect of exclusivity clauses, procuration fees and information sharing.
The interim report also confirms areas the FCA has provisionally considered but will not be including in its consideration of proposed remedies including simplifying mortgage price structures and amending the advice rules to require firms giving mortgage advice to consider price specifically.
The FCA’s Mortgage Market Study follows the implementation of changes brought in under the Mortgage Market Review in 2014, as reviewed separately under two thematic reviews on (i) advice and distribution; and (ii) responsible lending. The study focusses on the first-charge residential mortgage market and aims to consider and assess the functioning of the mortgage market and the aftermath of the Mortgage Market Review changes.
The study's findings so far set out the FCA’s estimate that 30% of consumers may be on mortgages which are not in fact the cheapest suitable product available for them. The FCA’s terms of reference for the study stated that the study would focus on the ability of consumers to choose products and advisors on an informed basis, the role of technology, the impact of current rules (including the MCD and the rules on advice) and whether commercial arrangements between lenders, intermediaries and other third parties have a detrimental effect on consumer outcomes.
FCA Mortgages Market Study interim report, 4 May 2018
FCA Mortgages Market Study terms of reference, 12 December 2016
The interim report was accompanied by 3 Occasional Papers: