The FCA’s recent direction of mortgage market travel continues to provoke debate, and its likely to do for some time, particularly once it begins to digest the responses to its Discussion Paper on this very topic, and gets a sense of what the market wants it to achieve.
For all the positivity, a debate tends to have at least two sides to the story, and the latest Landbay broker survey only underscores that some directional movements are far from universally supported, particularly by those who work at the heart of the mortgage process: advisers.
The regulator’s consultation paper (CP25/11) and the subsequent change to mortgage rules, show we’re already entering a new phase in mortgage regulation, one in which risk may no longer be quite the red flag it was, but more of a tool to be wielded in the name of growth.
Yet the Landbay findings reveal that fewer than one in four brokers actually back looser mortgage rules. That should ring some very loud alarm bells. Not because advisers are somehow risk-averse or behind the curve, but because they understand what’s at stake.
They see the clients. They know what affordability really looks like. And they know how quickly a theoretically ‘affordable’ loan has the potential to shift once it meets real-world circumstances.
Around this, we have another survey result; a third of advisers surveyed believe the loosening of rules will result in riskier loans. That may sound obvious to some, but it’s a significant figure when you think about the role of advice in this market.
There is, I believe, a strong moral element to the adviser response here; many simply don’t want to be put in a position where they could feel forced to recommend a product that allows a client to over-extend themselves, simply because a lender has been ‘encouraged’ to take on more risk.
That feels like the sort of contradiction that could quickly become problematic. Imagine a scenario in which lenders, under pressure to support economic growth or to demonstrate a more ‘balanced’ risk appetite, begin offering more generous terms to borrowers who would – over the last 15 years or so – be filtered out of the process.
Now imagine advisers looking at those same borrowers, judging their financial reality, and feeling uneasy about recommending those very same loans. You can see the friction point that is created.
And what happens if a client takes the loan and it goes wrong? Who do we think is most likely to receive the complaint? That’s not over-caution. That’s common sense,
and it’s based on a market structure in which the adviser is held – quite rightly — to a very high standard under the wider rules and Consumer Duty.
If those standards are being upheld by advisers, it’s only fair to ask if the same is expected of lenders and, indeed, of the regulator itself.
Because ultimately, the rules may be loosening but the potential for consumer harm could be increasing. We’re not talking about insignificant changes here. We’re talking about the FCA reshaping the affordability framework that has served the industry well since the Credit Crunch.
As I argued recently, we have spent 15 years moving towards a model where loan books are stable, arrears are low, and consumer outcomes are strong. To now treat that outcome as somehow too ‘perfect’, or in need of disruption, feels not just odd but somewhat reckless.
And let’s also be clear: advisers aren’t buying the core justification for these reforms either. The Government has implied that allowing looser limits will result in a significant economic boost through increased homeownership, improved mobility, and a freer flow of credit equalling greater economic activity.
But again the Landbay survey shows advisers are sceptical. Many simply don’t believe these reforms will deliver this growth. And I suspect there are many within the regulator who agree.
Which makes the course being charted here all the more worrisome. If those closest to the consumer are unconvinced, and if advisers, whose primary duty is to secure positive consumer outcomes, are going to be hesitant to recommend this path, who exactly will benefit from these reforms? Perhaps lenders’ direct-to-consumer channels who might aggressively push these options?
At which point the customer may well find themselves drawn into mortgage arrangements they don’t fully understand or can’t afford to sustain.
We are at a critical point. Mortgage advice in the UK is one of the market’s greatest strengths, and it is precisely this system of robust, regulated, independent advice that has helped ensure that lending over the past decade has been prudent, sustainable, and beneficial to consumers. Undermining that by pushing advisers towards riskier placements, whether by regulatory design or market pressure, is a retrograde step.
Perhaps the Government and the FCA need to take greater heed of the views being expressed here. Not just by distributors like ourselves, or our trade bodies, but by the brokers.
The very same individuals speaking to consumers every day, assessing their needs, their fears, their budgets. These are the people who understand what responsible lending and good advice really look like. Their voices should not be sidelined in favour of high-level assumptions about how risk drives growth.
Just because the option exists, doesn’t mean it should be taken. Let’s not lose sight of that.
Bob Hunt is chief executive of Paradigm Mortgage Services
