Learning lessons from the regulation changes in the mortgage market
Tony Moroney, director of banking and mortgages, Grant Thornton
Tony Moroney drew parallels between regulation of the mortgage market and the FCA’s regulation of consumer credit and detailed some of the impact of the FCA’s mortgage market review six months after its implementation.
As a result of regulation, the cost of providing a mortgage has gone up, the customer experience has deteriorated, and the FCA is still not happy with everything that’s happening in the mortgage market, he said.
Last year, the FCA fined financial institutions £474 million; this year the fines will exceed £1.5 billion. Much of that was about customer service.
“It really does come back to focusing on good customer outcomes, and that starts at the top. If the board and senior executives are not setting the agenda clearly in terms of being customer-focused and making profits that are not at the expense of customers, the organisation will fail,” he said. The regulator doesn’t mind you making money, but it can’t be at the customer’s expense.”
Mortgage sector regulators look for evidence of a sound business, with a sound strategy and robust controls. Management information, customer feedback and evidence of compliance is critical.
It means mortgage lenders need qualified people who can genuinely prove why a five-year, fixed-rate mortgage suited a particular customer better than a variable rate one. And they must have evidence that the customer can afford it.
The impact of the regulation is that, while people can still get mortgages, some have been adversely affected, such as the self-employed or those with interest-only mortgages.
However, any mortgage interview now takes an average of three hours. It means the customer experience has deteriorated, and it is a huge cost for the business. So some lenders are using brokers to provide the advice.
The mortgage market review is six months old and already the FCA has launched its post-implementation thematic review. It will look for necessary changes, and reprimands, and wants to see if lenders understand their customers. It also wants to see a standardised advice process to avoid variability, and wants to see if lenders are playing their governance role and reacting to customer complaints and feedback to avoid detriment.
“You can hide behind the regulations or lack of regulations and you will be doomed to major fines, because if it is not explicit in the regulation, it is implicit under conduct risk that you should know whether you are doing right or wrong by your customers.”
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