Brokers say intermediaries could benefit from Tesco and the Post Office’s new execution-only propositions if the FSA pushes ahead with its ban on non-advised mortgages under the mortgage market review.
Earlier this month, Tesco launched a range of two, three and five-year fixed-rate mortgages and two-year trackers up to a maximum loan to value of 80 per cent. The products are available in stores and over the phone.
The Post Office, which previously offered mortgages over the phone and online, followed with the launch of its range of two, three and five- year fixed-rate products at 75 per cent LTV, available in selected branches.
Both propositions offer a direct-only, non-advised service.
Post Office head of mortgages Mike Cook says sales staff, or “mortgage specialists”, are not trained advisers and can only offer information on the Post Office’s current range.
He says: “We call them specialists on the basis that they are experienced mortgage people but they will not be giving advice. What they will do is what we call an assisted sale. They will do a smaller fact-find where they ask the customer some personal details on their preferences, they will present the products on screen and the customer will make an informed decision on what suits them. Because it is quite a simple range, advice could be seen as overkill and it is not something we have ever been asked to give.”
The MMR estimates around 30 per cent of sales in the mortgage market are made on an execution-only basis.
In the third and final consultation paper on the MMR proposals, published in December, the FSA says: “A large proportion of these non-advised sales are to borrowers with higher-risk characteristics. For example, in 2007, 58 per cent of credit-impaired borrowers received no advice from branch-based sellers. We believe this is not delivering adequate consumer protection.”
The FSA proposes non-advised sales should be banned where there is “spoken or other interactive dialogue” between a customer and a lender. High-net-worth individuals would be exempt under the proposals and borrowers would be permitted to proceed with an execution-only sale if they reject the advice offered.
The final rules are expected in the autumn.
Both Tesco and the Post Office says they would move to an advised model if the MMR implements the ban.
A Tesco spokesman says: “As a responsible lender, we are closely monitoring the progress of the mortgage market review and will comply with any future regulatory requirements.”
Cook says: “If the rules change as a consequence of the MMR, we would have to go into an advice model but we would prefer not to.”
Precise Mortgages managing director Alan Cleary says he is surprised the FSA authorised Tesco and the Post Office to launch execution-only services ahead of the MMR.
He says: “I thought that, as per the MMR, execution-only sales were going to be a very small sub-10 per cent slug of the market. This move contradicts that so unless these guys know something we do not, it is quite an odd decision.”
The Association of Mortgage Intermediaries chief executive Robert Sinclair says if the ban is put in place, it could bring new opportunities for brokers.
He says: “While non-advised sales are within the current FSA mortgage conduct rules, if the MMR is enacted as it is currently proposed, then those models will have to change and they will have to move to an advised model.
“There would be a few commercial options available to execution-only firms. They could train their existing staff, hire new staff with the relevant qualifications or contract the business out. There may be broking firms that are prepared to work in partnership with them to deliver advice. The other option available is to sell their products through intermediaries.”
London and Country associate director of communications David Hollingworth says: “If the ban is enforced, the balance between direct and intermediary lending could shift back towards brokers. There would be a cost that comes with providing advice for firms that are not already doing so. It could force them to rethink their strategy and consider selling through intermediaries.”
John Charcol senior technical director Ray Boulger says there is a strong possibility that Tesco may sell its products through intermediaries in the future.
He says: “Tesco did not rule out using brokers forever. The door is very clearly open to use brokers in due course and I think that is what will happen within a couple of years. If Tesco has an appetite to conduct a serious volume of business, it will either have to massively increase its staff, perhaps have actual advisers in some of its branches, or use intermediaries. I think it could be using intermediaries by the end of next year.”