Proposals to give lenders greater flexibility must be supported by mortgage advice if they are to improve access without exposing consumers to undue risk, the Association of Mortgage Intermediaries has said.
The trade body issued the warning in its response to the Financial Conduct Authority’s Mortgage Rule Review consultation, Supporting First-Time Buyers and Underserved Customers.
AMI welcomed the regulator’s ambition and described the proposed changes as targeted and proportionate, rather than a return to pre-financial crisis lending practices.
It said there was scope to rebalance lenders’ risk appetite responsibly, widen access to home ownership and serve creditworthy borrowers who are excluded by the existing rules, while retaining the underlying regulatory framework.
AMI supported the FCA’s position that interest-only mortgages were suitable only for certain groups of borrowers with credible repayment strategies. However, it argued that part-and-part mortgages would provide a more balanced and sustainable option for many customers by offering flexibility while reducing long-term risk.
The organisation said the reforms could not be implemented effectively unless advice played a central role in helping borrowers understand their options and make informed decisions.
CLARITY SOUGHT
AMI called on the FCA to define “tailored interactive dialogue”, a term that previously had a specific regulatory meaning before being removed last year. It warned that reintroducing the expression without a definition could create liability risks for advisers and lenders, as well as leaving consumers uncertain about whether they were receiving advice.
The trade body also said the final rules should state explicitly that the credibility of follow-on repayment strategies should be assessed at the point of sale. This would help to protect advisers from retrospective challenges over decisions made in good faith.
Borrowers should receive prompts and support to review their repayment strategies at important stages, particularly when a fixed-rate period ends, AMI said. Although lenders could help through timely communications, advice would allow for a more detailed review and constructive challenge.
AMI recommended that lenders signpost customers towards advice when arranging interest-only product transfers.
It also called for a more extensive cost-benefit analysis and wider industry discussion of non-monthly payment structures, noting that credit-reference reporting systems were designed around monthly payment cycles.
The organisation broadly welcomed the proposals concerning retirement interest-only mortgages, credit-impaired borrowers, foreign currency loans and regulated bridging finance.
CLARITY AND CONFIDENCE
Stephanie Charman, chief executive of AMI, said: “We share the FCA’s ambition and have been working with the regulator, consulting with our trade body counterparts and seeking insight from our members to inform our response to these proposals, many of which we deem to be sensible and proportionate for the creditworthy consumers the current rules inadvertently exclude.
“But these proposals will only work if lenders and advisers adopt and implement them, otherwise they will fail in their aim to improve access to the market for more first-time buyers.
“It is important that the areas highlighted by AMI are addressed by the FCA through the final rules and guidance, to ensure firms have the clarity and confidence needed to adopt the proposals effectively.”
“The FCA must clearly define tailored interactive dialogue.”
And she added: “That is also why the FCA must clearly define tailored interactive dialogue, with practical examples, to give advisers confidence and limit liability. Advisers also need confirmation that a reasonable assessment made in good faith today won’t be second-guessed decades from now.
“Our full response is available on the AMI website, and I’d urge advisers to take the time to read it. Knowing what’s proposed, and where we’ve pushed back, will help firms prepare for what comes next.
“We look forward to continuing to work closely with the regulator to help shape a framework that is practical, proportionate and delivers good outcomes for consumers. We will continue to engage with trade bodies and the wider sector as this work progresses.
“Our work and engagement also extends into separate, but interlinked, FCA policy work, such as defining holistic advice and the later life market study. Throughout all of this work, our goal is ensuring the intermediary voice is heard and represented.”
