AMI expresses more concern over execution-only

Michael Lloyd

October 2, 2019

The Association of Mortgage Intermediaries (AMI) has expressed more concern about a move towards execution-only, in its quarterly economic bulletin.

It argued that with increased pressure to generate volume sales through this method, mortgage product manufacturers may design up front offers that are misleading.

These offers may look attractive to customers, but may include penalty clauses that “bite at the tail end of the deal period”.

The report read: “The experience of discount rates sold to subprime borrowers in the run into the financial crisis would be an apt example of this type of product design.

“Prudential Regulation Authority rules requiring residential affordability stress-testing would not necessarily rule out this type of abuse, particularly where deal terms are longer.

“The question AMI would ask is: could this type of product design be construed as an unfair contract? Another, is whether it could result in customer harm, a particular cause for concern for the FCA today.

“There is a real challenge here, reliant on whether regulators in the future are likely to consider a scenario such as this worthy of customer compensation.”

The report found brokers continue to write new business on Libor-linked products, without being able to advise clients of how the move to SONIA will impact on them should their term extend beyond 2021.

It concluded that lenders must communicate their plans to intermediaries as relates to the switch as soon as possible.

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