Lenders and borrowers will be incentivised to use direct-only channels and ditch brokers after the mortgage market review, the FSA predicts.
In a blow for brokers the FSA’s final MMR consultation paper says the number of intermediaries is likely to reduce further after the MMR is introduced.
The regulator says that making lenders more responsible for affordability assessments could force them to have greater involvement in the application process.
It states: “By giving lenders the responsibility to verify income and assess affordability, lenders might be expected to become more involved in the application process.
“This could lead them to prefer direct sales over introduced sales. Furthermore, in recent years, there already appears to be a trend towards the use of direct sales forces, irrespective of the proposed rules.”
Previous analysis by Oxera suggests the MMR will strengthen the trend towards direct-only.
It states: “Lenders are likely to reduce the number of intermediaries they work with and rely more on their direct sales forces. This might disadvantage smaller lenders, although they would still be in a position to use intermediaries to screen initial applications on their behalf if they find this beneficial, as long as they retain ultimate responsibility to verify income and assess affordability.
“Each intermediary is still likely to have access to a sufficient number of mortgage lenders. Borrowers may face higher search costs to access intermediaries if the number of intermediaries is reduced.”
The regulator does say the strictness of affordability checks could enhance a broker’s value but that it is similar to their current role in the current subdued market.
The FSA adds that moves to force brokers to reveal direct-only deals as part of the advice process make it more likely customers will go direct to branch.
It states: “The requirement for some sellers to disclose cases in which they do not consider direct-only products for consumers may incentivise some consumers to move from intermediaries to direct-only sales.”