A year after tough new rules were introduced to clean up the mortgage market, the City watchdog has released the findings of a review saying that in almost two-fifths of cases it couldn’t work out why advisers and lenders recommended certain loans.
The report by the Financial Conduct Authority (FCA) 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 (MMR) came into force in April 2014 to cut down on cases of mortgage mis-selling and consumers ending up with loans they might not be able to afford. It is also designed to prevent a repeat of the disastrous lending practices that 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. To find out how well they are working, 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 the 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”. 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 ... 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.”
Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said the 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… 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 provided.
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 that supports good outcomes.Reuse content