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MMR rules could incentivise lenders and borrowers to go direct

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.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. So the FSA doesnt want members of the public to receive advice then? Job done!

  2. So the FSA confirms that it a market controller not regulator. There will be no more innovation. The cost of administering mortgages will rise; competition will decrease (as a layman would you really know how to compare mortgages?). In 5 years the market will be in such a shambles that even builders will be looking to alternative schemes to aid the sale of their housing stock.
    At the present time the work load is probably tolerable – wait until the next boom when the institutions collapse under the work load, and in doing so create other mortgage scandals. Well at least it keeps the Regulator in business, and the Government couldn’t really care because they will have move on by then.

  3. Anyone else see a contradiction here?

    If non-advised sales are to be banned, the FSAs comments pre-suppose that the lenders will increase the size and quality of its sales force to meet advised sales rules.

    We have already seen banks withdrawing from the IFA market because of RDR, so have the why expect them to spend money in this sector which has to be less lucrative for them than IFA type income?

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