Mortgage industry faces fairness inquiry

Britain’s financial watchdog has launched a wholesale review of the mortgage market to assess whether there is sufficient competition in the sector and if it should be improved to benefit consumers. While there might be various ways in which changes can be brought about to benefit both customers and lenders (for instance, the implementation of softwares such as CRM for mortgage lenders might prove to be beneficial), it is yet to be seen what the review brings to light.

The Financial Conduct Authority said yesterday that it wants to know if consumers have an “empowered” choice between products and services, and whether technology could be used more effectively to provide advice.

The review will focus on residential mortgages and whether tools available, such as price comparison websites, best buy tables and mortgage calculators, are helping consumers identify products that are good value for money.

It will also explore whether commercial arrangements among different players in the supply chain lead to “conflicts of interest” or “misaligned incentives” such as inducements paid by lenders to brokers – known as procuration fees – and brokers recommending lenders from a panel, which represents a limited selection of the market.

Some housing developers have “close relationships” with certain brokers, which the FCA plans to assess, along with the incentives for estate agents referring customers to use their in-house broker. It said that some people might feel under pressure to use particular brokers in order to secure a property.

The study will take into account the FCA’s 2014 mortgage market review, which was designed to curb irresponsible lending, and its impact on intermediation. It will look at the different outcomes for those who obtain mortgages through brokers. Commercial mortgages, second charge and buy-to-let mortgages will not be part of the study.

The regulator has been gathering feedback on competition in the mortgage market since October last year. Christopher Woolard, executive director of strategy and competition at the FCA, said: “As a mortgage is likely to be the biggest financial commitment most people make in their lifetime, we’re keen to ensure that competition in the mortgage sector is healthy and working to the benefit of consumers.” An interim report is expected to be published next summer.

The Council of Mortgage Lenders welcomed the study and said it would consult with members on responding.

Paul Smee, director-general of the council, said: “The FCA’s rule changes in 2014 created a seismic shift in how mortgages are sold. It is entirely right that the regulator reviews their effect, as well as how commercial relationships in the market have developed in the light of the new environment.

“Any opportunity to review how the market can best work for the benefit of consumers is an opportunity worth taking, and we will be participating constructively.”

Andrew Montlake, of Coreco, a mortgage broker, said: “The UK mortgage market is complex, so we need to ensure that consumers have proper, professional advice and that the market is as transparent as possible. I believe in the main it is, but something like this will help to weed out any issues that there might be.”

The review could lead to significant market-wide changes, the publication of general guidance for the industry or sanctions for specific companies.

Buying for cash is losing appeal
The number of homes sold to cash buyers has fallen after reaching a peak in 2014 (Tom Knowles writes).

There were 356,000 cash sales in the UK last year, 30 per cent of the total, according to research by Hamptons International. This was 2 per cent down on 366,000 the year before. Mortgaged transactions increased by 2 per cent over the same period.

Hamptons said low mortgage rates, greater capital reserves at banks and measures to increase mortgage lending from the government and the Bank of England meant mortgaged buyers were now taking a big share of the market again.

The estate agent added that affordability in areas such as London played a key role in the declining number of cash buyers. Despite the decline in cash transactions last year, the cheaper northern markets experienced an increase while in the east of England and London they fell by 10 per cent and 7 per cent respectively.

Hamptons said that 70 per cent of cash buyers bought homes to live in rather than rent and were more likely to be older homeowners cashing in on their housing wealth to downsize.