Firms have positively applied the responsible lending requirements, which came into force as part of the Mortgage Market Review (MMR); however, there is scope for improving consumers' ability to make better choices about mortgage deals.
These are the two key conclusions from reports published by the Financial Conduct Authority (FCA) today: the Responsible Lending Review into mortgage lending decisions and the Feedback Statement following the October 2015 Call for Inputs on competition in the mortgage sector.
The Responsible Lending Review assessed how firms are applying the responsible lending rules introduced in April 2014 following the MMR.
The review found:
- overall, firms have implemented responsible lending rules in line with the FCA’s expectations
- some firms need to make process improvements to help them consistently assess and record their lending decisions
- some firms could be more proactive and consistent in making use of flexibilities and exceptions to the responsible lending requirements for existing customers
- no evidence that the rules have prevented firms lending responsibly to consumer groups such as older borrowers and the self-employed. However we are especially mindful that older consumers represent an increasing proportion of the UK population and it is important that the mortgage market continues to develop a range of products that can meet their needs. Potential issues relating to lending to older borrowers will be included in our wider work on the ageing population following our recent discussion paper.
The Call for Inputs on competition in the mortgage sector received significant engagement from across the sector. The responses can be categorised into four main themes:
- Consumers face challenges in making effective choices, particularly when it comes to assessing and acting on information about mortgage products, with intermediaries being key to the process.
- There are opportunities to make more effective use of technology in the provision of information and advice.
- Commercial relationships between different players in the sector’s supply chain - in particular the use of panels - might give rise to competition concerns.
- Certain aspects of the regulatory framework might have a negative impact on competition.
The FCA will carry out further work where there is greatest scope for competition to improve consumer outcomes. In particular, it will launch a targeted market study in Q4 2016 focused on consumers’ ability to make effective choices, with a view to improving how competition works in consumers’ best interests. This will consider the following questions:
- Do the available tools for helping consumers make choices (such as price comparison websites, best-buy tables, advice) effectively meet their needs?
- Are there any distortions because of undue focus on particular headline charges or features?
- Is there suitable provision for specific consumer segments with less common needs/circumstances (for instance, those without online access, those with greater levels of experience and understanding who have lesser advice needs, older borrowers needing advice across a wider product range)?
- Are there opportunities for better technological solutions?
- What is the impact of increased intermediation in the mortgage sector on consumer outcomes?
- How has the Mortgage Market Review changed the market in terms of intermediation?
- Are there differences in the outcomes for those consumers who obtain their mortgages through mortgage brokers when compared with those who go direct to lenders?
- If so, what drives those differences and is there room for improvement?
- What is the impact of panel and other commercial arrangements between lenders, brokers and other players in the mortgage supply chain?
- Is there potential for conflicts of interest or misaligned incentives?
- Do any such arrangements create barriers to entry or expansion resulting in less consumer choice?
Christopher Woolard, Director of Strategy and Competition at the FCA, said:
'For millions of consumers a mortgage is one of the biggest financial transactions they will enter into in their lifetime so it’s encouraging to see firms embrace the spirit and the letter of our rules.
'At the same time, there appears to be more to be done to improve competition in the mortgage sector. Competition can play a key role in ensuring that the sector works well, delivering lower prices, better products and choice, and more innovation.
'Based on the evidence we’ve collected so far, we intend to launch a forward-looking market study later on this year, with particular focus on the roles played by intermediaries and panels.'
Notes for editors
- Read the Responsible Lending Review[1]
- Read the Mortgages Call for Inputs – Feedback Statement[2]
- The Feedback Statement summarises the work and themes emerging from the FCA’s Call for Inputs on competition in the mortgage sector, and outlines its next steps in terms of competition work in the mortgage sector. The FCA will launch, in Q4 2016, a market study focused on consumers’ ability to make effective choices.
In addition, the FCA will also:
* contribute to the CML and Which? work on the transparency of mortgage fees and charges which is currently underway
* act on specific aspects of the current FCA regulatory regime where it considers that there is a case for change so as to improve competition
* work with industry to increase competition law awareness in the sector
* take forward discussions with the PRA around the issues raised in the CfI on capital requirements - Read the Call for Inputs on competition in the mortgage sector[3] published on 7 October 2015.
- Market studies are one of the main tools the FCA uses for examining how competition works and to assess whether it should intervene in the interests of consumers. The FCA will consider the precise scope of the market study in the coming months, with a view to publishing terms of reference in Q4 2016. The market study will run to the end of 2017, with any potential remedies (which can include publishing guidance, making proposals for enhanced industry self-governance, and amending the relevant elements of the regulatory framework) to be implemented thereafter.
- Firms in the mortgage sector often engage with a pre-determined group of firms (also known as the ‘panel’).
- On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers. - Find out more information about the FCA.