Considering how politically important first-time buyers have been to recent governments, and the taxpayers’ money that has been thrown at a large number of schemes designed to help these individuals get onto the housing ladder, it has been surprising just how little apparent thought has been given to the means by which the vast majority achieve those property ambitions, namely the mortgage.
This is especially interesting in the context of financial education in our schools and colleges. Let’s just say it’s thin to say the least. Is anyone truly being taught about mortgages or deposits, conveyancing or protection, the interest rate environment and what shapes it, how income and expenditure impacts the ability to get a mortgage, etc. I could go on.
The fact of the matter is it tends to be left to advisers to fill these particular gaps and thank goodness that, for the vast majority of those starting out on their first mortgage journey, they do.
We know most mortgage business comes through the advisory channel, and that first-time buyers are no different in that the majority opt for professional advice, not least because the alternative probably doesn’t bear thinking about in the context of the complexity and wide variety of choice available, not forgetting the difficulties the process presents for those trying to do it themselves.
DIRECTION OF TRAVEL HAS SHIFTED
However, as Paradigm have recently reiterated – following up on industry discussions last year – the direction of travel being presented to many borrowers is not towards advisers.
In fact, quite the opposite with more investment and resource being put into digital/execution-only channels, seemingly supported by a regulator which appears much more comfortable with the outcomes borrowers get via this than they ever were.
This, of course, presents serious challenges for all borrowers, but particularly first-time buyers who – quite frankly – don’t know what they don’t know, and who might feel much more comfortable utilising tech in order to secure a mortgage.
Even if they are not necessarily going to be sure that they have ended up with the right mortgage outcome.
They might simply assume that, by doing this, they are getting the most suitable product, but as we all know only too well, if you go to one bank/building society you’re only getting ‘advised’ on their products, and you are effectively giving up all kinds of protections you would secure via an adviser, in both the regulatory/consumer protection sense, but also in terms of protecting against unforeseen circumstances.
AN INHERENT VULNERABILITY
In that sense, as the Paradigm discussion paper points out, there is an inherent vulnerability that comes with being a first-time buyer here. Because, as we should all be acutely aware, this is not just about the mortgage by any means; it is also about having adequate protection and having conversations which look at the full financial wants and needs of an individual, rather than just the mortgage as an execution-only process would do.
It worries me that, not so far into the future, the smoothest path available to first-time buyers may actually be the worst one for them.
Which seems somewhat bizarre given we are living in the regulatory age of ‘Consumer Duty’ but that is the contradiction inherent in the environment we have, and the one we are potentially merging into.
HAVE WE FORGOTTEN THE CONSUMER DUTY?
I am not surprised more and more industry colleagues are getting behind a campaign to introduce mandatory advice for first-time buyers.
The precedents exist for this in the pension world, and again somewhat ironically, I remember the Consumer Duty was seemingly set up as a means to get more people in front of advisers, and those advisers would be required to cover off more of the client’s needs, not least because for most people, the mortgage adviser was the only professional they would be seeing in their lifetime.
The push to secure mandatory advice for first-time buyers may not achieve this result, but that doesn’t mean it’s not worth pursuing. You sense the government/FCA may be hard-pressed to go for all out mandation, but it should certainly consider this.
In the meantime, the consumer message for first-timers is a simple one to pursue, and while mandatory advice is not law, everyone in our industry can surely support something that protects the first-time buyer and ultimately gives them the best chance of getting the right product for their circumstances both now and in the future, and helping protect them against the almost inevitable changes they will see in their lifetimes.
