Britain’s financial watchdog has launched a review of the mortgage market that will probe the “inducements” routinely paid to brokers and other industry players, to see whether consumers are losing out as a result.
The Financial Conduct Authority (FCA) market study will look at whether competition in the mortgage sector can be improved, and whether commercial tie-ups between the sector’s different players “lead to conflicts of interest or misaligned incentives to the detriment of consumers”.
The regulator said that while commercial agreements between mortgage lenders, brokers and the like may provide some benefits, it was concerned they may also result in competition not working in the best interests of consumers.
The FCA aims to publish its interim findings next summer ahead of a final report in early 2018. Resulting action could range from market-wide remedies such as new rules or a referral to the Competition and Markets Authority, to measures aimed at one or more individual companies such as financial penalties.
The watchdog is particularly keen to look into the inducements paid by lenders to mortgage brokers, by brokers to estate agents and developers, and to other third parties including price comparison websites.
It said inducements paid by lenders to brokers – such as so-called procuration fees, which are often several hundred pounds for each mortgage – “may influence brokers’ advice and limit the number of lenders both on their panel, and those that they recommend”. This in turn may create a barrier to entry for some lenders, and limit consumer choice.
The FCA said it was interested in exploring the extent to which brokers’ advice could be biased due to lenders paying different levels of procuration fee and “soft incentives” to brokers.
It is also keen to look into the incentives that estate agents had to refer consumers to their in-house brokers, and whether this led to worse outcomes for consumers.
The watchdog said some firms had mentioned the “close relationships” between housing developers and certain brokers, and that it wanted to explore the links between mortgage firms and price comparison websites in order to understand whether inducements were influencing how search results were ranked and displayed.
Christopher Woolard, the watchdog’s executive director of strategy and competition, said: “As a mortgage is likely to be the biggest financial commitment most people make in their lifetime, we’re keen to ensure that competition in the mortgage sector is healthy and working to the benefit of consumers.”
