A year after tough new rules were introduced to clean up the mortgage market, the City watchdog says in almost two-fifths of cases it reviewed it couldn't work out why advisers and lenders recommended certain loans.
The Financial Conduct Authority’s damning report said some mortgage advisers “were failing to take reasonable steps to obtain sufficient, relevant information about customers’ needs and circumstances before making recommendations.”
The Mortgage Market Review came into force in April 2014 to cut down on mortgage mis-selling and consumers ending up with loans they may not be able to afford or that could put them into financial difficulties in the future.
The review was part of a widespread change to the way that mortgage are sold to stop a repeat of the disastrous lending practices in the last decade that partly contributed to the collapse of several British lending institutions at the height of the credit crunch.
The new rules are supposed to ensure that consumers now receive timely and appropriate advice so that they are only recommended mortgages which are suitable for their needs.
To find out how well the new rules were working for consumers, the FCA used mystery shopping exercises, file reviews, on-site visits and consumer research to look into the quality and suitability of mortgage advice provided by firms.
Its investigation concluded that although 59 per cent of advice provided to customers was suitable, “the basis for 38 per cent of recommendations was unclear”.
On top of that in 3 per cent of the cases assessed the advice was judged to be “demonstrably unsuitable”.
It means there is “scope for improvement”, said Linda Woodall, acting director of supervision at the FCA, adding: “A mortgage is a significant undertaking for anyone. It is vital that customers are able to get suitable advice and a positive experience when deciding on their options. Some firms were able to provide this, but not all.”
Responding to the criticisms, Paul Smee, director general of the Council of Mortgage Lenders, said: “Lenders have had a huge workload in implementing the new rules and, in many ways, the report’s conclusions chime with what firms are telling us about the challenges they face.”
He said the work was evolving, as some lenders seek to fine-tune their processes. “Like us, individual firms will welcome the opportunity to work with the FCA towards consistently delivering good outcomes for consumers,” he added.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association said the mortgage industry needs more time to cope with the new rules: “ Clearly there are areas of advice and distribution that need to be strengthened. Efforts have already been initiated by lender and broker trade bodies to improve working relationships under the new regime. But it remains a work-in-progress.”
Following the review, the FCA said it will continue to work with the mortgage industry to address the issues identified. It revealed that individual feedback to firms has already been given, as well with actions required as a result of the findings.
The regulator said some firms assessed had already identified issues with their advice processes, and were making changes to improve their service to consumers. But it said others need to do more to create a culture which supports good customer outcomes.Reuse content