The mortgage market has always moved in cycles, and right now it feels like a few familiar elements are being dusted off and brought back into, what we might deem, ‘polite mortgage society’.
In that regard, we’ve got lenders going back up the LTV curve, with some offering 100% LTV mortgages; we’ve got the return of interest-only as a viable affordability tool; and we’ve got stress tests being tweaked and amended by some lenders in order to make borrowing more accessible.
REASSESSING THE RULES
All of this is being discussed ahead of the FCA’s much-anticipated mortgage market Discussion Paper, and it’s tempting to ask just how many of these so-called ‘retro’ elements might be covered off in this and what others might come back to the fore.
Certainly, it’s right and proper that we reassess the rules that were put in place post-2007. The financial crisis changed the landscape for good reason, but over time, markets evolve, consumer needs shift, and it makes sense to revisit whether some restrictions are still fit for purpose.
That said, any return to riskier product structures needs to be accompanied by a parallel focus on consumer protection.
Interest-only, for example, can be a sound option for some. So can 100% LTV lending, if it’s done within a robust framework and aimed at the right borrowers.
The danger comes not from the products themselves, but from how they are accessed, assessed, and advised on. Which makes the FCA’s apparent desire to dial down the advice trigger in mortgage sales all the more baffling.
FAST AND FRICTIONLESS FUTURE?
We know the direction of travel the FCA seems to favour: faster with a greater degree of more frictionless access to mortgage products. But removing advice from the equation doesn’t accelerate good outcomes; it strips away the very mechanism that ensures consumers understand what they’re taking on.
As I, and many in the profession have highlighted in recent weeks, it’s a proposal that cuts directly across the principle of Consumer Duty, and if the FCA is serious about putting consumers first, then the role of advice should be reinforced, not removed.
There’s a reason why over 90% of mortgage business go through the advice channel. It’s not because consumers have been misled into thinking advice is necessary. It’s because it is necessary.
Most people don’t want to choose a mortgage from a drop-down menu; they want guidance, reassurance, and professional input.
And more often than not, they want help understanding how a mortgage fits into the broader context of their financial life – protection, insurance, future planning, the lot.
That’s what advisers do, and it’s why advice is popular.
DUAL PRICING DAMAGE
Which brings us neatly to one of the less encouraging trends making a reappearance: dual pricing. Lenders have every right to price how they wish, but – as we have witnessed more in recent weeks – offering cheaper deals via aggregator sites while penalising advised channels feels like a backwards step.
It may make commercial sense in the boardroom, but it makes no sense under Consumer Duty.
We’ve been here before, and we saw the damage it caused – advisers unable to recommend the best deals, consumers confused about why advice cost more, and overall transparency undermined.
Dual pricing in this manner presents the execution-only channel as somehow equivalent to advised sales when it’s plainly not. It suggests consumers are getting the same level of service, with the same protections, when they aren’t. And it creates a perception problem: that advice costs more, even though what the consumer gets in return is far greater.
In truth, dual pricing doesn’t just penalise brokers, it penalises the very consumers Consumer Duty is supposed to protect.
So yes, we’re seeing a return of certain features that were prevalent in the pre-crash era. But context matters. We’re not in 2007 anymore, and we shouldn’t behave as if we are. The industry has matured.
The regulatory environment, for the most part, works.
Advice has become embedded, valued, requested and expected by consumers – something this iteration of the FCA would do well to remember. We can explore new options, embrace product innovation, and even relax some rules, but we must do so with advice at the core.
When it is published, the FCA’s Discussion Paper may well set the tone for the next decade of mortgage lending. Let’s hope it recognises that the future of mortgage advice isn’t something to be downgraded.
On the contrary, if we’re to embrace more flexible, potentially riskier products again, then the case for professional, regulated, personalised advice becomes stronger than ever.
Without it, we risk not just repeating the past, but repeating its mistakes.
