Confident borrowers should be able to switch deals simply, but the FCA needs to guard against pushing too many away from advice.
The Financial Conduct Authority, the main financial regulator, has outlined a host of changes it wants to make to the rules governing the way borrowers like you and me can get hold of a mortgage.
The regulator suggested that as things stand, its rules may push people towards getting advice on which mortgage to go for – whether from an independent intermediary or from a lender’s own adviser – when they are more than happy to handle it all themselves.
Part of the problem is that when a borrower ‘interacts’ with a lender, this can see them moved over from an execution-only application – where I pick the deal I want and go ahead with getting it – to an advised sale, which involves more lengthy discussions with an adviser about precisely which product to go for.
It’s fair to say that at the moment the rules are a little wacky when it comes to what counts as an interaction worthy of moving a borrower from execution-only over to an advised sale.
The FCA gave the example of customers who had attempted to apply for a deal online, only for the form to freeze, and so they called the lender to get their advice on how to address the problem.
Rather than seeing this as an IT problem, this ‘interaction’ was enough to divert them over to an advised sale, with all that that entails.
Getting a mortgage online
The FCA also reckons its rules are currently acting as a barrier towards the development of online tools which would help borrowers find the deals they want, much as we do with personal loans and credit cards.
The regulator noted that its guidance was written before “online transactions in financial services markets became widespread”.
In other words, it wrote its rules before we all started using price comparison sites, and with firms not keen to upset the regulator, they have been a little on the cautious side when it comes to developing similar facilities that might work for mortgages.
By loosening the rules a little, the regulator hopes to see more of these tools, that aren’t providing advice in the way that you or I might understand it, but are instead helping a borrower make a more informed decision about what sort of loan they might want to go for.
It’s notable that within days of the FCA’s announcement, Nationwide Building Society – one of the nation’s biggest mortgage lenders – has launched a new platform with a price comparison site allowing its existing customers to switch deals on an execution-only basis.
My own experience
Last year I remortgaged and saw first hand just so unnecessarily long the process can be for people that are comfortable on an execution-only basis.
I’d picked out a new deal that would cut my repayments, and I was staying with my existing lender, so I figured it would be a quick process.
The only part that should have taken any time was arranging for the valuation, as thankfully the property is worth more now than when we bought it.
In reality of course, the process was considerably more protracted, with a handful of calls clarifying that I was definitely happy with the product I’d selected, and I really did understand that a five-year fix means the rate is fixed for five years.
It was excruciating, so any changes the regulator can make to speed up this process for confident borrowers are to be welcomed.
Advice is still right for many
However, I’m well aware that I am one of the lucky ones.
I’ve been writing about mortgages for more than a decade at this point, so I’m pretty comfortable not only with how they work, but also with just what sort of deal – and lender – will suit my circumstances.
That is absolutely not the case for most people, who understandably spend very little of their time worrying about early repayment charges and the how long they might want to fix their rate for.
As such, the FCA has a bit of a tricky balancing act here. It is right to make it easier for people who are comfortable with mortgages to sort out their home loan on their own.
But equally they need to avoid pushing people away from advice who really would benefit from it.
There’s a very good reason that so many mortgage deals in the UK go through brokers.
Advisers are excellent not just at working out which sort of deal might work for you, but at pinpointing the right lenders, helping you sidestep the potential servicing issues that come from going with a particularly slow lender.
Picking the wrong lender could mean black marks on your credit record if they turn you down, or even the collapse of the sale entirely if they drag their feet over getting the funding approved and sorted in time.
It would be a big mistake if making life easier for those confident about mortgages meant steering people who need advice towards doing it all themselves.
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