Following a meeting between the Economic Secretary to the Treasury, other government ministers and mortgage industry representatives, work is to be done to make lending more transparent.
The meeting also discussed the measures that have already been taken to boost help for first time buyers such as Help to Buy and ISAs and how they can be taken forward. It comes at a time when advice given by lenders to borrowers has been found to be mixed in the aftermath of changes brought in last year.
In particular there has been criticism of the new questionnaire that all applicants have to fill in so that lenders can ascertain that they can afford repayments with instances of people not revealing all their spending plans for fear of being rejected. A lot of older people and self-employed have also found it harder to get a mortgage.
The Economic Secretary to the Treasury, Harriett Baldwin, revealed that since 2010 some 2.8 million mortgages have been advanced, worth a total of £444.5 billion, and by backing the government’s flagship Help to Buy schemes, the industry has helped nearly 100,000 people get onto or move up the housing ladder.
‘The government’s Help to Buy ISA which is due to launch later in the year will get young people on to the housing ladder, while our work on supporting lending to older people will make sure the mortgage market delivers for those who have worked hard all their life,’ she said.
We are pleased that the real effect which the mortgage market can have on people’s lives is recognised within government. We take the industry’s responsibilities to borrowers very seriously,’ said Paul Smee, director general of the CML.
‘We hope the improvements we are making to the transparency of fees and charges will help make it easier for people to understand mortgage costs more easily, and will support the many benefits that a wide choice of mortgages brings to consumers,’ he added.
Meanwhile, the CML is working with its members, who make up over 90% of lending business for homes in the UK, to improve the advice given to mortgage clients after a review by the financial watchdog, the Financial Conduct Authority (FCA) said that there is room for improvement.
Smee pointed out that lenders have had a huge workload implementing comprehensive rule changes in April last year as a result of the mortgage market review (MMR). ‘Those changes have been introduced with little disruption for consumers or to the market more generally. But there was more to be done to refine the ways in which firms operate,’ he said.
The FCA found that the quality of advice in the mortgage market was mixed. Some firms were engaging customers in focused and relevant discussions, leading to suitable recommendations based on a good rationale. But there was a lack of structure to the advice from other firms, with a risk that advisers were not getting sufficient understanding of the customer’s needs and circumstances on which to base a recommendation.
It said that both intermediaries and lenders had scope to take a more customer focused approach to giving mortgage advice. This included better gathering of information about borrowers’ needs and circumstances, and probing consumer's pre-conceptions to determine whether they really do need what they think they need. The FCA found that larger retail intermediary networks had most work to do to manage and mitigate the risk of poor outcomes for consumers.
The report pointed out that firms needed to be careful about relying on completing point of sale application systems as in some cases, there was little flexibility for advisers to use their judgement and adapt delivery to meet the customer’s needs. But the best performing firms were able to strike an appropriate balance.
It also found that some customers were confused about the purpose of the questions they were asked and worried that they may be ‘caught out’ or declined finance if they answered questions ‘incorrectly.’ The FCA’s research suggested that this may lead customers away from volunteering all relevant information to an adviser.
The regulator said there was a risk of advisers ‘shoe-horning’ customers with credible plans for repaying interest only mortgages into repayment mortgages that may be less suitable for them. It said that intermediaries often assumed that interest only mortgages would be unsuitable for some borrowers.
‘Following publication of the review, we will be working with the FCA and with our members later this summer to help identify good practice in delivering advice to consumers. The industry recognises the importance of good experiences for customers, and more than a year on from MMR implementation it is a good time to take stock and review,’ Smee said.
