Preparing for the mortgage market study - The impact of distribution on customers

Posted: 2nd December 2016

The Financial Conduct Authority (FCA) will soon be launching its long awaited market study into competition in the mortgage sector, and firms will be keen to know the areas the regulator will be exploring and what impact this could have on them and their business models.  

Here, we identify three factors that are likely to have implications for firms across the sector:

Broker panels

The FCA will be analysing the impact that broker panels have on the advice and service provided to customers. The regulator has been vocal about the ‘web of relationships’ it sees in the mortgage market that can cloud the judgement of consumers: 

• Are consumers aware of the options available to them?
• Do they understand the nature of their relationship with a mortgage lender, including the level of service provided?
• How can the industry make relationships and conflicts more transparent for consumers in the buying process?

Intermediaries

A focus area for the regulator is the incentivisation of intermediaries, particularly in the following areas: 

• Do lenders offer incentives which are preferential to intermediaries, but offer little or no benefit to the customer?
• What inherent conflicts exist within remuneration structures and how are these actively managed to ensure poor customer outcomes do not result?

Direct distribution

For lenders that sell direct to customers, some of the considerations for their business models include: 

• Are customers clear about the benefits of dealing directly with a lender, and that the service they offer is distinct from that of a broker? 
• How can an adviser provide best advice if they are limited to the lenders’ own products?

Anticipating the FCA's findings

Undoubtedly, the market study will cause brokers and direct lenders alike to review their distribution and business models to ensure that what it delivers is aligned to achieving good customer outcomes. Some of the inherent conflicts in the current supply chain will fall under the spotlight over the ensuing months. Firms that take a customer-focused and proactive approach are likely to be more able to adapt.