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Online tools envisaged for UK mortgage market

UK lenders could develop new online tools to help consumers select the right mortgage product for them, the Financial Conduct Authority (FCA) has said.

The regulator said that although the UK mortgage market is "working well in many respects", there are improvements that could be made, including measures to help borrowers find the right mortgage product, obtain advice or other support, select intermediaries and switch between providers.

According to the FCA, around 30% of consumers in the UK mortgage market in 2015-2016 "could have found a cheaper alternative mortgage for which they were eligible with the same key features", and the remaining 70% may not necessarily have bought "the cheapest suitable mortgage available" either.

Making new tools available to consumers could help improve the way the market works, the FCA said in an interim report (86-page / 1.14MB PDF) it has published into its mortgage market study.

"The development of new and innovative tools could provide consumers with opportunities to better compare products, get support (including advice), and apply for a mortgage," the FCA said in its report. "If consumers have the opportunity to decide how much support they need, and in what form, this could drive more effective decision-making and greater convenience. However, our existing advice rules and guidance may act as a barrier to this."

The FCA said it is open to altering its advice rules and guidance, however, to accommodate change in the market.

"In the next phase of our work we will talk to industry and consumer groups in more detail about how the advice standards may be inhibiting innovation and what can be done about that," the regulator said. "Solutions could include changes to the trigger for advice, exploring what more can be done to enable intermediaries to offer execution-only sales, allowing firms to promote their execution-only channels on a more equal footing, and/or reviewing relevant guidance about what constitutes regulated advice."

"We are willing to consider amendments to the Handbook to help the market deliver more effective tools for consumers. At the same time we need to ensure that we do not restrict access to advice for those consumers who would benefit from it," it said.

Currently, however, there is "no easy way for a consumer to be confident at an early stage of the products for which they qualify", which places "a significant constraint" on consumers' ability to shop around effectively, the FCA said.

Limited upfront information on eligibility from lenders may also prevent consumers obtaining the best deals when selecting mortgages through intermediaries, it said.

"This lack of information restricts intermediaries’ ability to look across the entire market and may play a part in intermediaries favouring fewer, more familiar lenders which could in turn lead to customers missing out on the cheapest suitable mortgage," the regulator said.

In its report the FCA also outlined its plans to help mortgage consumers switch providers more easily, including long-term borrowers who may be unable to move easily from legacy deals.

"One option would be for active lenders to volunteer to approve applications for an internal switch from all customers currently on a reversion rate that also meet certain criteria designed to identify those customers that (i) have been affected by the changes in lending practices during and/or immediately after the crisis, and (ii) are up-to-date with their mortgage payments," the FCA said.

"This would be a solution that enables all affected customers with ‘active’ lenders to switch… An industry-wide agreement would reinforce this practice where it already exists (many lenders tell us they already do this) and would mean other lenders adopting a similar approach," it said.

The FCA's interim report is open to comment until 31 July. The regulator's final report from its market study is expected to be published around the end of 2018.

"Our vision for the market is one in which: borrowers who can afford a mortgage can choose suitable and good value products and services; firms have a culture of treating all consumers fairly, and; competition and proportionate regulation empower consumers to make effective choices before taking out, and throughout the life of, a mortgage," the FCA said.

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