The FCA and brokers have highlighted the ongoing problem of some estate agents making borrowers feel like they need to use the agent’s in-house mortgage broker.
Section 5.5 of The FCA’s Mortgage Market Study Final Report said: “Around a quarter (23%) [of consumers] said they chose the intermediary because it was recommended to them by an estate agent.
“Our Financial Lives Survey 2017 also indicates that, of those who used an intermediary recommended by an estate agent, around one in four [nearly 6%] felt they had to do so.”
The FCA said it wants consumers’ initial contact with the mortgage market to be on an informed basis and wants them to act on information regarding the strengths of different brokers when seeking mortgage advice.
It said that transparently giving customers information, showing how many lenders a broker uses for example via the broker comparison tool being developed, would make customers more knowledgeable.
The report added: “This might also help consumers referred to an intermediary by estate agents and/or developers. Consumers would be better placed to identify whether that intermediary offers the level and quality of service that they want.”
Jonathan Burridge, sales manager at The Mortgage Lender, said: “Nearly 6% felt forced, obliged that to go through estate agent’s mortgage broker. To me 6% is a big number.
“This has been going on for many years. You can’t have an unfair contract. The client should have their own independent broker to look after their best interests.
“Estate agents might have code of conduct and guidelines but are not held to the same account than that of brokers. You can hint at this FCA outcome as evidence of that.”
Ray Boulger, senior technical manager at John Charcol, said there’s been stories for years about buyers been cajoled by estate agents or developers into using a particular broker or solicitor and he believes transparency is the way forward.
He added: “It’s sensible for buyers to see an independent broker before househunting so they know how much they can afford. Buyers most disadvantaged in these situations are first-time buyers because they don’t have the experience, awareness of rules and need the most help.
“Recommending a broker is okay but it’s wrong if it goes beyond a recommendation and the potential buyer is intimidated, even if not directly told, that if they don’t go with the recommended broker or solicitor, they’d be disadvantaged.
“And there’s nothing wrong with referral fees if they’re at a reasonable level and transparent.
“It’s illegal to say ‘unless you use this broker we won’t put your offer forward’ or ‘if you haven’t seen our broker we haven’t got confirmation you can afford the house so you won’t be recommended’.
“But the laws are not effectively enforced. I think this area is more of the remit of The Competition and Market Authority to deal with rather than the FCA.
“I think if you increase transparency that gives more positive consumer outcomes. The more people understand what’s happening the more sensible decisions they’ll make.”
Agent Online is an estate agent referral service for brokers whereby both parties send business to each other by recommending each other to consumers while emphasising that it’s their choice who they use.
Dominic Toller, managing director at Agent Online, said: “I’m aware some consumers we speak to have felt they had been compelled to use a broker put in front of them by an estate agent and I have no doubt that practice still goes on which isn’t right.
“We think it’s very important for every borrower to get an indication of what they can borrow first. We strongly encourage every borrower to speak to one of our brokers we work with but make it clear it’s their choice to use that broker and they don’t have to. It’s entirely their choice who they use.”
Chris Oatway, owner and director of LDNfinance, added: “We would certainly agree that there are benefits to estate agents validating an offer by way of referral to a mortgage adviser, but this should never be under the guise of ‘conditional selling’.
“A recommendation is fine, but the purchaser should always be free to make their own decision on who they use to arrange their finance.”
However, the FCA paper also found “current commercial arrangements between firms, such as commission lenders pay to intermediaries or referral agreements between intermediaries and estate agents or developers, do not appear to result in consumers paying significantly more for their mortgage”.