The Financial Conduct Authority is “less worried about the mortgage sector than almost any other [sector]”.
Speaking at The British Specialist Lending Senate, Association of Mortgage Intermediaries’ president Robert Sinclair (visualized) explained that the regulator acknowledged that the “individual consumer journey” primarily goes through sourcing, so a reality discover is done, information are then keyed into the system, which then returns responses.
The broker then utilizes those responses together with “hard and soft facts to say to the customer, ‘that’s the most suitable product for you at the cheapest price we can get it for you’”.
Sinclair said: “The command lines are brief till we get to the expert sector where there may be a packager while doing so or there may be a home loan club in the method.
“The biggest risk that sits in that is that the club negotiates the price, such as the proc fee, and are they inside the circle when it comes to Consumer Duty? It’s a debate that is still alive, I think in terms of how that operates.”
He continued that the regulator not being as worried about the home mortgage sector “doesn’t mean we don’t have to do it, doesn’t mean we can’t be better, doesn’t mean that there isn’t a lot to be done, but you’re not going to be the prime target when it comes to this stuff”.
The FCA came out previously this month to state that some home mortgage intermediary companies were “over-confident” about their Consumer Duty policy and said some were approaching the policy requirements “superficially”.
Lender charge structures might come under analysis
One location that might come under analysis is loan provider charge structures, specifically if a loan provider does more than one location of business such as domestic, 2nd charge and life time home loans.
Sinclair said there would be a “challenge” for a loan provider who runs in numerous loaning locations in how the business “justify the fair value for the amount of work that goes into each by way of fact find, work completion and all the rest of it to say that you’re delivering fair value against the fee structure”.
Sinclair kept in mind that some might sector the business mix into different legal entities, however still run under one regulative routine, however he included that ‘he was not sure the regulator would buy that’.
Another choice may be to sector individuals into various channels and explain that the business just operates in that a person location, nevertheless your managed consents might note that the business covers all 3.
“Not sure how to get away with that in the fullness of time,” Sinclair included.
“When the regulator says they’re not worried about this market, they mean they’re not worried about the prime residential market.”
He said that the regulator was taking a look at the life time market at the minute, including that: “I fear that what they’re finding this time is worse than the findings they made two years ago”.
Price and volume ‘most complex areas’
Sinclair said that within Consumer Duty, which includes the entire supply chain of monetary services, cost and volume are the “most complex areas”.
He explained: “In a free market and one as extremely competitive as home loans, if you’re not the cost setter, you’re a rate fan.
“The regulator gets that, because…normally there is only one price setter, but the reality is that there is a price setter that demands that loan to value (LTV) or at that income point they set the price everyone else is following.”
Sinclair said that that was the “reality of the market we operate in” however “defining that and thinking it through is really important”.
He included that the obstacle of Consumer Duty was evidencing that you were doing it, keeping in mind that “it is not about anybody saying you’re doing it wrong”.
“It’s the footsteps in the sand that give the measures,” Sinclair continued.
“It starts with understanding your proposition and your strategy and whether you’re a lender or a broker, the fundamental here is you set out in words of one syllable who you are here to serve and why and who you do not want to serve.”
“Consumer Duty is about a lender defining what they do, how they do it and what their products are, and distributors defining what they do, how they do it, and therefore what they do.”
