Bob's Blog

Mortgage Market Study inconsistencies make for frustrating read

27 Mar 2019

The press release which accompanies the FCA’s Mortgages Market Study Final Report has the headline, ‘FCA acts to help mortgage prisoners’.

Now, if I was heading up the PR strategy for the regulator when it comes to the report, that’s exactly how I would have couched it. Who can argue with intervention in this part of the market?

It is to something of our shame that we have let this particular issue fester on for so long, and that there are still tens of thousands of borrowers sat on expensive rates, who are completely up to date with their payments, and would (ordinarily) be able to move to a new lender/cheaper product.

By the same token, there should be industry support to help those who are essentially prisoners of their own making – who do not move off more expensive rates when they could clearly save money by doing so. Advisers have worked hard to help these borrowers and there should clearly be a role for the advice community to market its services to those who would benefit from them.

So, all well and good then? Following last year’s Interim Report which set the proverbial cat amongst the pigeons on any number of intermediary-related areas, the FCA has clearly listened to the industry and decided to roll-back on its rhetoric, to accept this market works well, to support the work of advisers and the importance of advice in this increasingly complicated space, and to allow the market to function as it should do.

You’ll sense a hint of sarcasm in that paragraph, because that’s very far from the approach adopted by the FCA in its Final Report. While it has clearly hoped that all the media headlines would be garnered by its focus on mortgage prisoners, it also seems to have thought that the mortgage industry would not read the rest of the report, and would not have a viewpoint on the document.

If that was its intention, then I’m afraid it’s got the temperature of the market very wrong, especially when it comes to (amongst other things): a continuation of its fixation on price from the Interim Report, it’s suggestion that advisers pick the first suitable product they see in order to secure a quick procuration fee rather than a potentially cheaper option, the persistent pursuit of an advisory firm comparison tool, the suggestion that advice is not necessary for certain groups of consumers, not forgetting a seemingly continued drive towards more execution-only business delivered by ‘tools’ which it does not give any further detail on.

At the same time – and indeed in the same report – it also states that the market works effectively for the vast majority of consumers, it says those consumers using intermediaries are less likely to be on a more expensive rate, plus it has no plans to intervene when it comes to pricing, despite suggesting that large numbers of borrowers are seemingly missing out.

To say this is a report of contradictions is something of an understatement. Indeed, at times it feels like it’s been written by two different teams who have failed to communicate with each other.

Within 50 pages it outlines how the market absolutely needs a comparison tool/directory to allow consumers to better compare intermediary firms, and yet it makes inclusion in this directory voluntary. It says that consumers absolutely need better upfront information on the products they are eligible for, even though advisers have all this available to them, and argues that the industry needs to come up these tools in order to make it happen.

My overwhelming feeling is that last year’s Interim Report was a chastening experience for those who wrote it, and that the criticism has been taken on board, but not truly accepted. How else would you explain the constant attempts to justify the recommendations outlined last year which still do not add up to any intervention?

If the FCA was that concerned consumer detriment was high, surely it would have put measures in place? Apart from the warranted measures regarding mortgage prisoners, there is precious little to suggest the regulator believes the issues it raises so vociferously warrant any sort of action. Which to my mind suggests they don’t need raising in the first place.

The example regarding brokers choosing products based on ‘incentives’ seem particularly ludicrous – those ‘incentives’ being the procuration fee. To suggest advisers can’t marry up eligibility and choose the most suitable/best priced product because they are too intent on picking the first product that shows its head in order to secure a quick proc fee, is just nonsense.

Brokers can be quick, efficient and ensure the most suitable product is chosen – and for any FCA person reading this, price is still not the sole arbiter. Regardless of whether you can find a product cheaper, the adviser considers much more, even if it seems like you still can’t buy this argument.

Overall, the mortgage prisoner action apart, it’s hard not to be disappointed by this Final Report. It seems far too intent on justifying last year’s Interim Report rather than accepting it may have mis-judged the market. When your work does not add up to your conclusions, sometimes it’s better to say you got the work wrong rather than present it for marking again.

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