New rules from the FCA are coming into effect in July 2024, that require mortgage lenders to go one step further in ensuring their borrowers on closed books are getting the best possible outcomes from the products and services sold to them.
On July, 31, the second wave of FCA rules relating to consumer duty sets out an obligation for them to work to a higher set of standards when it comes to reviewing the relevance and suitability of its products sold to clients, and take action accordingly.
The new regulations will give brokers a fresh chance to engage with their clients, acting as more like as “guardian figure” using current data to ascertain the best deal and product for many clients.
This measure is particularly important for vulnerable clients and disengaged or “gone away” customers, who for instance, could be paying higher mortgage rates than they need to. Some may even believe they are, mistakenly, mortgage prisoners.
What this means for brokers
Under the new rules, we believe brokers should consider recommending a fresh survey of the mortgage property, potentially improving the loan-to-value ratio, and therefore being able to offer their clients a host of better deals than they are currently on.
The FCA guidance requires lenders to address any “material gaps” in client data so that it can confidently “assess, test, understand and evidence” the outcomes that clients are receiving as a result of products they have historically bought.
The change is another example of a switch in the direction of regulation that offers the mortgage broker the opportunity to take on much more of an advisory role to the client rather than just a facilitator of the financial transaction, as has historically been the case.
This is good news for mortgage customers who might not be as engaged with what is happening in the housing market, as it means the responsibility is now with the broker to ensure their product is still working for them.
How the housing market effects this
House prices have risen considerably in the past three years, despite recent fluctuations. According to the Office for National Statistics, the price of the average home grew by 12.4% between Feb 2021 (£250,000) and February 2024 (£281,000).
More recently, up to May 2024 UK property prices saw a more modest increase of 1.5%, according to the Halifax House Price Index.
When it comes to secured lending the property matters and no amount of Automated Valuation Models will account for changes made to properties over the past 5 years that will have enhanced value. By offering existing clients a survey, brokers can liberate and literally change the financial future of clients who may mistakenly currently believe they are trapped.
Lenders will react to this responsibility but for many this will amount to little more than aggressive communications plans leaving the decision to act with the borrower.
Affordability might not be the issue many believe it to be if the property can do more of the heavy lifting when it comes to securing a better rate.
If you want to know more about how we can help you then get in touch by emailing enquiries@gotogroup.co.uk.
