The London FSE shows always bring up an interesting number of industry issues to be confronted and this year was no different. Following the trade press over the two days earlier this month, there was clearly a major focus on the regulatory changes that will be introduced next year as a result of the Mortgage Credit Directive (MCD). Indeed, we need not actually wait for the 21st March 2016 as firms can already voluntarily introduce the rules now.
While the MCD does bring in some major changes for advisers not least in areas such as second charge mortgages, disclosure documentation with the flip from purely KFI to either the ESIS or KFI plus, and consumer buy-to-let regulation, I get the sense that the Mortgage Market Review (MMR) is still having considerable repercussions for all stakeholders and that this continues to dominate our market space.
Director of AMI, Rob Sinclair, gave a very interesting presentation at FSE which looked at the ongoing fallout from MMR, some 18 months on from its introduction, based on the FCA’s own advice market review. This review analysed what good and bad mortgage advice practice looks like and gave some practical examples that all advisers/firms should review at their earliest convenience.
My own impression is that advisers were fully up to speed with MMR from the get-go while lenders have taken some time to become comfortable with it. However, it is perhaps the mortgage customers themselves who struggle the most with MMR, in terms of how it has changed the marketplace, and what it means for their ability to get the loan they want. Indeed, research out today suggests that 31% of borrowers have no idea the MMR was introduced, while 35% were aware but are confused by the new rules.
There’s no doubting that many borrowers would have seen the headlines around tightened affordability and lender criteria and would have been worried. Sinclair at FSE outlined how this has ended up affecting the adviser/client relationship because he suggests one of the biggest problems is clients not telling the truth at the fact find stage because they are concerned that if they do, they won’t get the loan.
This is clearly going to cause problems for all concerned, not least the adviser who is having to unpick all this false information in order to try and help the client secure the finance, and to ensure there is no repercussions further down the line. Clearly this increases the case workload for advisers in this situation and I would suggest might be one of the justifications for lenders upping the procuration fee level because of the greater work involved today. Whether this will be the case remains to be seen.
One of the other major concerns, and one which should play into the advisers’ hands, is the consumers’ understanding of what they are getting when they walk into their bank and building society looking for a mortgage. Overall the suggestion is that these customers don’t understand what is and isn’t ‘advice’; instead they think every interaction with a bank or building society employee is ‘advice’ when this is clearly not the case.
The marketing message perhaps mortgage advisers should therefore be offering is that they are the only individuals who the customer can trust to provide them with advice every single time. This is simply not available if they go direct, plus the message about severely curtailed product choice in going direct also has to be at the forefront of this. In the post-MMR environment there are clearly opportunities for advisers to secure an even greater market share; however, the education and information messages about what MMR is and what it means for customers also has to be delivered in order to offer comfort and support, but also to ensure expectation levels are managed.
Richard Adams is managing director of Stonebridge Group