The FCA is attempting to shift the balance between self-service / execution-only mortgages and broker-advised mortgages. But is this a good idea?
After considering its position for around 12 months, the FCA (the Financial Conduct Authority which oversees the regulation of our financial services sector) recently announced certain steps that appear to encourage lenders to offer easier access to customers to self service when it comes to their own mortgages.
This self-service option – called execution-only mortgages in our industry – has actually been available for some time now but was considered by the regulator to be something of a no-go area.
If a customer genuinely knows the product that they want and the grounds on which they’d be prepared to take it out, have some insight into their future financial position, and are able to navigate the hundreds of data points that brokers record and consider when making a recommendation, then it is perfectly possible for a customer to self-select their mortgage.
Logically, it makes sense for there to be space in the market for intermediaries, for lenders and for self-service/execution-only options to co-exist. That choice should improve the consumer’s position when it comes to selecting a mortgage, and it means that brokers and lenders should be focused on genuinely adding value to a customer when they advise them.
At Twenty7Tec (we provide the technology to the mortgage market to see what mortgages are available at any given time), we have read the FCA’s report thoroughly. We are broadly welcoming of certain elements that encourage the use and development of technology within the mortgage market (as you’d expect). In particular, the clarification that makes clear that performing searches and filters based on objective criteria do not necessarily constitute broker advice means that customers are likely to see better advice and ranges of options.
That use of technology for the benefit of a mortgage buyer is something that we have long supported.
We are also in favour of the FCA’s amendments which require advisers, if they do not recommend the cheapest suitable mortgage, to explain why they have not recommended a cheaper mortgage. We think that that’s only fair on the customer.
The good news is that, in our experience, that that’s something that brokers are already offering – a rationale for not simply choosing the lowest priced mortgage. That’s where their insight, experience and advice come into their own.
Is this a threat or an opportunity for the broker market?
It certainly feels like an opportunity for brokers to grasp. The advance of technology and increased consumer choice is an opportunity for differentiation based upon quality of advice and service.
However, could customers taking out mortgages themselves result in some poor consumer outcomes? I believe it could. If nothing else, the lack of advice means there’s no protection or recourse. Consumers may well find themselves susceptible to some of the more rogue elements of the market who may seek to take advantage of them by inserting egregious terms or overly long early repayment charges which hold people prisoner to their mortgage.
There’s always going to be a place for good advice. I do think that it’s telling that every financial services professional I ask would take advice when they need a product to buy a house. I took advice the last time I moved and would do so next time too. We develop technology to support those giving advice, not to replace the advice itself.
Consumers are right to ask for speed and convenience, but that needs balancing with what’s also in their best interests – we’d hate for people to choose the wrong product quickly. My advice is, where possible, take the advice.
James Tucker, CEO of Twenty7Tec – a leading provider of technology to the mortgage industry. www.twenty7tec.com