The Financial Conduct Authority (FCA) published in July 2015 a Thematic Review assessing the quality and suitability of mortgage advice. This follows the implementation of the Mortgage Market

Review (MMR) in April 2014 when new rules were introduced.

The key finding was that the quality of advice in the mortgage market was mixed. The majority (59%) of mortgage recommendations to customers was suitable and only a very small number of cases assessed (3%) were unsuitable. However, there was a high number of cases (38%) where the FCA could not determine whether the mortgage recommended was suitable.

The FCA did not identify systemic consumer detriment. However, greater consistency is needed to deliver suitable recommendations. The FCA’s Thematic Review forms part of a wider programme of mortgage work and in April 2015 the FCA commenced a review into responsible lending.

The FCA believes that many advisers in its review could have done more to engage customers when providing mortgage advice. In particular, advisers must assess each customer’s needs and circumstances and use their judgment, knowledge and skill to recommend suitable mortgages.

Taking out a mortgage is one of the most important (financial) decisions most consumers will make during their lifetime. The new mortgage advice regime from April 2014 means that most consumers will receive advice.

The FCA’s research indicates that consumers are keen to educate themselves about mortgage repayment methods, features and risks. Consumers do try to gather information. However, consumers have a poor understanding of the role of mortgage advice and find it difficult to distinguish from the eventual lending decision.

Arrow Loans believes that consumers need a greater understanding that advice is not just about obtaining the lowest interest rate or best deal! Advice is about defining the most appropriate criteria then finding the best value product within the agreed criteria.

Some borrowers know what they want and do not properly engage in discussions with the mortgage adviser. The FCA wants firms to engage more effectively with customers to reduce any risks of misunderstanding or poor customer outcomes. Firms must probe customers’ stated preferences and try to obtain all relevant information. Ultimately, borrowers are responsible for their own decisions.

The FCA’s full report (Embedding the Mortgage Market Review:
Advice and Distribution TR15/9) may be found on the FCA’s website here.

Arrow Loans will give mortgage advice from March 2016 when the regulation of Second Charge Mortgages (secured loans and homeowner loans) will fall under the FCA’s Mortgage Conduct of Business rules (MCOB).

Government policy is to develop the Second Charge Mortgage market so that it becomes more flexible and sustainable, encourages competition and innovation, and meets consumer needs, while ensuring that consumers are adequately protected from unfair and irresponsible practices.