Selected Issue 6 - Summer 2019



In the last issue of Selected, we outlined on the two key areas within the Mortgages Market Study (MMS) final report that could drive change within the industry - a proposed digital comparison tool to help select the ‘right’ adviser and the desire to support ‘mortgage prisoners’ in switching to a better rate. Another topic under the FCA’s microscope is related to concerns about ‘making it easier for consumers to choose the right mortgage’. It cited the prominence a mortgage has, making up 80% of total UK household liabilities, and thus the importance in selecting the best value product. The regulator identified that 30% of customers could have found a cheaper equivalent mortgage deal; at an annual average saving of £550 per year. This was consistent across both intermediary and direct mortgage sales, which then drove further questions around the reasons for this. The stand-out reason was clarity - particularly clarity of certain eligibility criteria. The study covered how pricing is naturally driven by criteria, and thus where there is uncertainty around eligibility, there is potential for a consumer to be paying for more than they need to (e.g. a higher maximum LTV, or maximum age than they require). The study stated ‘a consumer should buy a mortgage for which they just meet the eligibility criteria’. Easier said than done of course, but they did refer to the types of criteria where they believed the product chosen had stricter requirements than other equivalents. This was due to the transparency of the criteria in question and maximum LTI and minimum credit score were shown as the two biggest offenders. What we find encouraging is – against the backdrop of these findings – is that those consumers using intermediaries were much less prone to taking a mortgage product that was costlier than it should be, with ‘only around 20%’ missing out on ‘significant savings’. It is recognition of the vital part advisers play in ensuring that UK consumers find the most suitable mortgage for them. And given the increasing proportion of mortgages sold through advisers, the study did not propose to intervene any further. We see this as a direct reflection of intermediary market in maintaining high standards of professionalism. What the study did hope for however, was a greater level of understanding from consumers on the mortgage products they would be likely to qualify for, at the earliest possible stage, utilising APIs to drive multiple decisions in principle from lenders. They continue to work with a cross-section of lenders, intermediaries and fintechs to explore such possibilities. There was pushback within the industry around the level of focus the study gave to price when conducting the study, and thus the idea of simple decision in principle based largely on price isn’t a perfect one. You know better than anyone, that there are numerous factors to be considered when picking the ‘right’ mortgage, and it is our view that the best place for a consumer to select the right mortgage is in conjunction with the expertise of qualified advisers with a broad range of lending products to choose from.

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