Advisers will continue to have a strong relationship with clients, despite rules making it easier for them to remortgage and reduce terms without advice, the regulator has said.
Today, the Financial Conduct Authority (FCA) published its policy statement PS21/11, announcing voluntary rules for lenders that allow them to discuss mortgage options with customers without directing them to advice.
Giving customers independence while maintaining advisory relationships
When asked if enabling more borrowers to remortgage without advice – even to another lender – would change the adviser-client relationship, Emad Aladhal, director of retail banking at the FCA, said advisers would always have a good connection with borrowers.
“Why wouldn’t that continue? To give a very practical example, if a customer is experienced, has had a mortgage before and wants another mortgage, they know what they’re doing.
“They know exactly what they want from their product, but maybe they don’t know how to complete an online form.
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“Our rules would previously make the firm that the customer is trying to engage with point them to advice. Actually, the customer doesn’t need advice. They just need someone to help them understand how to navigate this online form.
“This is about allowing customers and firms to have those natural conversations to say: ‘I can help you, either on the phone or face to face, to navigate an online form’,” he said.
He said this would create an opportunity for a lender to see if a customer really knows what they are doing, or if they need an adviser.
“This is about firms being able to have good information, providing that information to customers, assisting their customers and helping them navigate in a way that’s cheaper, quicker, and easier,” he added.
Aladhal said Consumer Duty had established a strong basis for this, and the positive election point had been maintained to ensure a customer can proceed on an informed basis.
He added that this would also support “greater flexibility and innovation for the industry”, coupled with “good supervision and oversight” as it evolved.
Giving lenders choice
The rules are permissive, so lenders do not have to adopt these changes and can continue to direct consumers to advisers.
This is expected to give firms the time and training to make sure they have the right standards in place to meet these requirements if needed.
Aladhal said it was unlikely that advisers would see a shift in business levels due to this guidance, as there was still a requirement to identify customers who need advice, and it was also retaining the level three CeMAP qualification needed for arranging this business.
“We feel that’s a key area where firms that have trained staff who can recognise advice and enable them to understand when a customer doesn’t need advice,” he added.
He said that at the moment, customers can ask a lender about the risks or features associated with a product, but that lender could not respond, as it would cross over into advising.
Aladhal said: “Here, they will have the ability to discern between customers who are asking for pure information and those seeking advice.”
Aligning with government aims
When asked how much influence the government’s plans to reform mortgage lending had on the FCA’s announcement, Aladhal said that since the beginning of this year, the regulator had already set out to work on mortgages as a key area.
This was part of the reason why it came out with its statement in March to remind lenders that they had flexibility around affordability assessments.
Its policy statement, published today, also confirmed that the FCA would amend its modified affordability assessment so borrowers do not have to undergo a full affordability check when remortgaging or reducing a mortgage term.
He said the FCA said it could not work on its aims alone, and some parts would need the government, industry and stakeholders to “lean in”, adding that this was something he welcomed.
Aladhal said: “The March statement was followed by this consultation and the wider discussion paper, so we’re looking at this in a very considered way. We’re acting at pace, and we’re making sure that we deliver quickly for both industry and for consumers.”
Regarding the lender response to affordability flexibility, which saw the likes of Santander, Nationwide, and Barclays make adjustments, Aladhal said the regulator welcomed this.
“We did it in a way that we thought would gain maximum traction because of our engagement pre-publication with industry.
“This is a hugely competitive market, and firms reacted to the flexibility that has always been there,” he added.
A new lending landscape
Aladhal said the lending landscape had changed since the rules that were introduced after the global financial crisis in the Mortgage Market Review.
“Largely, the rules we see today are those established since 2014 or just thereafter. The consumer and the market are totally different today,” he added.
Speaking about the Mortgage Rule Review discussion paper DP25/2, which was published in June following consultation, given the complexity of this new market, Aladhal said it was not possible to look at consumers in isolation – as first-time buyers, remortgagors and those borrowing into retirement all engaged with the sector differently.
He said: “We want to make these changes quickly. In terms of the discussion paper, we want to act at pace to help the industry, to help consumers, to help the UK grow.”
He said there was a question of what should be prioritised and how, and he welcomed the industry’s feedback on this.
He continued: “We want firms across the whole sector, whether we’re talking about advisers or lenders, to use the changes that we’re implementing. Both the permissive changes we’re implementing in this policy statement, and then beyond that, looking to the discussion paper – to innovate, to help customers, both aspiring homeowners and existing borrowers get access to mortgages, in a better, cheaper, quicker way.”
