Decisions on buying their home and finding the best mortgage are among the most significant choices people ever make. The FSA market analysis incorporated in its mortgage market review suggests we need to make big changes to the way that mortgages are offered at these life-changing moments.
The Association of Mortgage Intermediaries’ response to the distribution and disclosure consultation has suggested making advice compulsory for at least some high-risk groups, if not all. After lengthy discussions, it was felt people should understand the benefits of advice and what they lose if they take a non-advised route.
I have been intrigued by the approach adopted by our lender partners. The Council of Mortgage Lenders, in suggesting that advice should be compulsory via intermediaries but banks should be allowed to do non-advised sales, appears to be avoiding the point. The MMR radically changes how consumers are dealt with by the industry, which require a change of approach from intermediaries and lenders.
In suggesting that some customer groups must have advice, the AMI is acknowledging that first-time buyers, the credit-impaired, those borrowing into retirement and on interest-only need the support of a professional who takes responsibility for recommending a solution. These are people who need assistance in decisions that could cause them financial hardship later in life.
This consultation, if imple-mented as proposed, will drive the biggest change in decades in how mortgages are sold. The need for all involved in talking to clients to assess appropriateness and affordability changes the landscape. This will change the interview process considerably. It will make it more complex and, because of the appropriateness test and the new rule on acting in the consumer’s best interest, most lenders will end up presenting people with one option. By default, this is advice in most people’s language.
For this reason, we at the AMI have said the FSA should move away from delivering rules and asking for the market to interpret them and be more transparent about its intent. These proposals are brave but need more debate. The line between an advised and a non-advised interview will be so narrow as to be invisible in many cases.
Why not be brave? Let’s step over the line. Say that, as an industry, we will take responsibility. Give advice always and take responsibility for the products. Making a recommendation and acting in the best interest of customers are great badges to wear. It is what responsible professionals do.
I am concerned that the impact of such changes has not yet surfaced. The time for more complex interviews and the compliance costs of record-keeping and training will change market economics. Some lenders may exit, some may favour direct sales and others might move more to intermediated options.
We still have time but the opportunity for debate is leaking away.
Robert Sinclair is director of the Association of Mortgage Intermediaries