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FCA launches review into UK mortgage market

Posted 21 December 2016

A major review of the UK's mortgage market in 2017 by the regulator will study whether competition for home loans can be improved for customers

The UK's financial regulator, the Financial Conduct Authority (FCA), has announced a mortgage market review which will examine whether the inducements between the main players in the market 'leads to conflicts of interest or misaligned incentives to the detriment of customers'.

The FCA has announced a review into the UK's mortgage market to probe whether commercial relationships between mortgage lenders, brokers and other industry players result in competition not working in the best interests of borrowers.

One of the key areas that the regulator will consider is whether the inducements paid by lenders to mortgage brokers may influence advice. The FCA will also look into payments and incentives offered by brokers to estate agents and developers, and payments made to third parties including price comparison websites.

The FCA says that inducements paid by banks and building societies to mortgage intermediaries - often called 'procuration fees' and worth several hundred pounds each - "may influence brokers' advice and limit the number of lenders both on their panel, and those that they recommend."

This limit could mean that some lenders face a barrier to entering the market, leading to a limit on the choice offered to borrowers. The FCA is also worried that the advice given by brokers could be biased towards lenders who pay higher 'procuration fees' and other incentives.

FCA to consider incentives paid by estate agents, price comparison sites and developers

The regulator will also consider the incentives that estate agents have to refer consumers to their in-house mortgage brokers, and whether this leads to worse outcomes for consumers.

The FCA said some firms had mentioned the 'close relationships' between housing developers and certain mortgage brokers. It also wants 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.”

An interim report is expected in 2017 with the final report published in early 2018. Depending on the outcome, 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.


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