Ryan Bembridge

May 7, 2019

The Financial Conduct Authority plans to make mortgage advisers explain why a cheaper mortgage was not recommended in the event of that happening.

In a consultation paper on mortgage advice and selling standards launched today, the FCA said the proposed rule change is in response to findings in its Mortgages Market Study, which found that 30% of consumers could have an identical or better mortgage that was cheaper than the one they got, whether or not they received advice.

The FCA said: “We propose to add a requirement in advised sales that, if the adviser is not recommending the cheapest of the suitable mortgages from their product range, they must explain why to the customer and record the reason.

“We think this approach reflects and builds upon good practice in the market.

“We are aware that many advisers already discuss price with their customers and if they are not recommending the cheapest of the suitable mortgages from their product range, explain why.”

The regulator gave examples of when an adviser would explain their decision and record the reason: The adviser may recommend a 2-year fix with no upfront fees where appropriate, or may opt for a mortgage where the cheapest deal is offered by a lender known to have a slower speed of service.

Mortgage tool change

Secondly the FCA wants to change its rules to make it clear that tools which allow customers to search and filter available mortgages may not be giving advice.

Currently the regulator’s Perimeter Guidance on mortgage advice dictates that giving generic information or advice may amount to giving regulated advice if it steers the customer towards one or more mortgages.

Some mortgage lenders and potential market entrants told the regulator this prevents them from developing online tools for consumers to search and filter mortgages for fear of being treated as giving advice on suitability.

The regulator added: “We think we should more closely align our Perimeter Guidance on advising on regulated mortgage contracts with the Perimeter Guidance on advising on investments.

“In line with the FAMR approach, we propose to update our guidance to indicate that a tool that allows a consumer to search and filter based on objective factors (such as interest-rate type and term) is not necessarily giving advice.

“This will make it easier for such tools to present options to consumers. Firms won’t necessarily have to go through all the steps needed to comply with our advice requirements.”

Less execution-only detail

Thirdly the FCA plans to remove the detail required on firms’ execution only policies.

Currently the regulator said rules require a lot of detail to be included, like an estimate of the amount of execution-only business they anticipate doing.

This apparently gives the impression that execution-only is inherently riskier and therefore discourages people from going down that route.

The FCA is consulting on the new rules until 7 July 2019 and will publish its feedback and final rules around the end of the year.

The regulator said the proposals should be read by mortgage firms, trade bodies representing these firms and consumer bodies.


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