Mortgage advisers will have to make it explicitly clear if they do not advise on direct-only deals but will not be forced to offer a fee option or advise on direct deals to retain independence.
The FSA this week published a mortgage market review consultation paper setting out a number of changes to the mortgage distribution landscape.
Firms will be split between restricted and independent, mirroring the RDR adviser classifications. Firms wanting to be independent must source products from “a comprehensive and fair analysis of the relevant market” which can include using a representative panel of lenders. The FSA separates mortgages, equity release and sale and rentback into three relevant markets.
Firms will not have to advise on direct-only deals to remain independent but will have to make it clear to clients that they do not include such deals in their service. They will not have to offer a fee option to stay independent.
The FSA will also remove a barrier for brokers to advise on direct-only deals by scrapping the requirement to produce a key facts illustration. Instead, they will have to keep a record of the advice and provide clients with a durable copy of this record.
The FSA says brokers will still have a role in affordability assessment but this will be restricted to checking if the customer fits in with the lender’s affordability criteria and to ensure the product is suitable.
Firms will not have to give borrowers an initial disclosure document but will be required to disclose “key information” regarding services and remuneration.
The FSA has ruled out making any changes to the format of the KFI but will change the points at which it is issued to ensure consumers are not overburdened with information. Firms will only be required to provide a KFI when a recommendation is made to take out a product or if a consumer requests it.
The regulator is looking to ensure every person involved in advising on mortgages – excluding underwriters and those administering mortgages – is qualified to QCF level three.
Roll-up fees – where intermediary and lender charges are bundled together – will not be banned but fees should not be automatically rolled up without the borrower’s consent.
Two KFIs may have to be issued if fees are rolled up to ensure clients are aware of the increased monthly payments.
The estimated one-off cost of implementing the proposals is £39m-£50m, with annual costs of £2m.
Association of Mortgage Intermediaries director Rob Sinclair says: “With the creation of a level playing field for the industry, the proposals may drive up the cost of banks delivering mortgage products direct. This would be good news for intermediaries, who could see a rise in demand from lenders.”
MMR consultation paper points
- Firms must make it explicitly clear if they do not advise on direct-only deals.
- A fee option is not necessary for a firm to use the label ’independent’.
- Lenders bear ultimate responsibility for assessing affordability but brokers will be required to ensure product is suitable for customer and if they fit in with lender’s affordability criteria.
- Firms will not have issue an initial disclosure document but will be required to disclose ’key information’ regarding services and remuneration.
- KFI trigger points changed to ensure consumers do not get overloaded with information but the content of the KFI will remain the same.
- Every person involved in the mortgage sales process will be required to reach QCF level three and be subject to a code of ethics.
- Roll-up fees will not be banned but should not be rolled up without the borrower’s consent.
- Two KFIs might be needed if fees and charges are rolled up to ensure consumers are aware of the increase in their monthly payments.
- The FSA says it ’sees no reason’ why the proposals in the paper should not apply equally to equity release.
- The one-off cost of implementing the proposals is £39m to £50m, with annual costs of £2m.