Expert discusses the implications of adaptation
Following the Financial Conduct Authority (FCA) launching a new set of rules called Consumer Duty on July 31 this year, requiring firms to put their customers’ needs first and to provide clear and fair value for money across financial services, much change has been seen within the housing market.
So, how have specialist mortgage lenders been impacted, how are they adapting and what have been some of the greatest challenges so far?
How are specialist mortgage lenders being impacted?
Vicki Harris (pictured), chief commercial officer at Kensington Mortgages, said specialist mortgage providers are subject to Consumer Duty rules in the same way as high street lenders.
“They need to be able to demonstrate that their products offer fair value, despite higher pricing than those found on the high street,” she said. Encouraging lenders to think about where and how they are adding value, Harris said, has been an important exercise for the wider industry and key for cementing credibility.
Lenders, Harris added, have also had to consider how to identify and address vulnerable clients more effectively, bearing in mind the wide variety of circumstances that can contribute to difficulties.
“This is particularly relevant in the current economic landscape with interest rates likely to remain elevated for some time and inflation driving up the cost-of-living,” Harris said.
The introduction of the new rules, she said, has also encouraged specialist lenders to meet their customers’ diverse requirements.
“This involves designing products and services to reflect the specific circumstances and needs of the customers they are serving and provide the right outcome for them,” Harris said. This is particularly important for specialist lenders, which typically favour a more tailored approach to product development and servicing.
How have specialist lenders adapted their service in line with the new rules?
“While we have always thought about our products and services from the perspective of our customers, the introduction of Consumer Duty regulations has encouraged us to do so in a more structured and formal way,” Harris said.
This will of course be an ongoing process, she said, requiring mortgage providers to monitor the performance of their products and services throughout the full lifecycle of the loan.
More broadly, Harris said, Consumer Duty has offered specialist lenders an opportunity to review their processes and challenge the way in which they approach their service.
“This will demand ongoing assessment as to whether we are delivering the right customer outcomes, making it important for providers to maintain the capacity to evaluate and improve their performance,” Harris said.
By encouraging a focus on improvement of service, she said, the new rules have also opened new opportunities for lenders to compete in areas outside of price alone.
“Aspects such as clarity of communication and the quality of customer support for instance, will become increasingly important for prospective clients, encouraging a more holistic approach to evaluating business performance,” Harris added.
What have been the greatest challenges for specialist lenders to overcome to meet Consumer Duty?
One of the bigger challenges for mortgage lenders following the introduction of Consumer Duty, Harris said, has been defining what an individual product is.
“Is it as simple as thinking in terms of residential or buy-to-let? Or are high loan-to-value (LTV) products different from low LTV products? Are tracker mortgages the same product as loans with an initial fixed rate term?,” she questioned.
Since the introduction of Consumer Duty, Harris said specialist lenders have spent a lot of time considering questions like this before arriving at the definition of what a product is and which specific customer segment each of them serves.
“This thinking has helped us to make our business more competitive and informs where to focus our product development efforts to ensure that we meet a wider range of customer needs,” she said.
How have you seen specialist lenders impacted by Consumer Duty? Let us know in the comment section below.
