Terms of Reference for Mortgage Market Study published by FCA

The FCA’s Mortgage Market Study focuses on the information available to consumers and key relationships between industry participants which might impact consumers.

On 12 December 2016, the FCA published the Terms of Reference for its Mortgage Market Study. This market study aims to review competition in the market for residential mortgages. In particular, the FCA will consider:

  • what information is available to consumers and the effect this has on their ability to make an informed decision about the mortgage options available to them, and
  • whether key commercial relationships eg between lenders and brokers and other industry participants result in an outcome that is detrimental to the consumer.

The FCA also aims to review technological solutions to consider if technology or a lack thereof, poses a barrier to the provision of information to consumers. In conjunction, the FCA will also look at various mortgage distribution and service channels, and whether the customer outcome differs according to the channel used (including whether advice given is actually used).

Scope of the study

Residential mortgages

The market study will cover first charge residential mortgages, looking at the key stages of the consumer journey and any potential consumer barriers. This market is much larger than any other sub-sector of mortgages and therefore has a large impact upon consumers. The study will not proactively seek input in relation to second charge, commercial or buy-to-let mortgages.

All industry participants in the consumer journey

As expected, the FCA will consider how institutions offering mortgages manage their relationships with consumers. However, the FCA will also review those activities and relationships between industry participants outside of the FCA’s sphere of influence eg estate agents, developers who introduce consumers to lenders and brokers and other services in the chain eg surveyors. It will also review “any firm or entity that aids consumers to make decisions along this journey, such as price comparison websites and, through their use by brokers, mortgage sourcing systems”.

The market study is broad-ranging and will follow all aspects of the consumer journey. Like all its other market studies focusing on competition, the FCA’s priority is encouraging competition in the market for the benefit of consumers, regardless of whether the activities or industry participants within the market fall directly within its regulatory parameter.

The FCA has a wide variety of tools at its disposal, including references to other enforcement agencies, in order to promote competition.

Assessing outcome

The Terms of Reference frequently note that the FCA is interested in understanding if particular factors lead to “better outcomes” for consumers or are detrimental to consumers. However, it is not quite clear how the FCA will measure “positive” or “negative”, given that the best outcome will vary from consumer to consumer. For example one consumer might value speed and so the commercial relationship between lender, broker and estate agent helps to streamline his/her mortgage lending process or another may be solely concerned with price, and this same relationship may lead to the consumer to pay a greater level of fee to the broker than he/she may have otherwise done, if he/she had had the opportunity to shop around. Greater clarity on this may come as the FCA collects feedback and publishes its findings in due course.

Next steps

The FCA is not formally consulting on the Terms of Reference, but welcomes comments by 12 January 2017. Its findings will be published in the Interim Report, which is expected in summer 2017, with the Final Report Q1 2018.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.