Impact on the industry could be huge
The mortgage industry is collectively holding its breath as the Supreme Court prepares to hear a landmark case this week that could redraw the boundaries of commission disclosure law in financial services.
Although the immediate legal battle concerns motor finance - specifically undisclosed commission payments to car dealers - the broader implications could sweep across the UK’s mortgage market, where brokers routinely receive commission from lenders for arranging loans.
Industry leaders fear that the decision, expected later this year, could trigger a regulatory tightening around broker remuneration and transparency rules, with a risk of retrospective claims if historic arrangements are deemed legally non-compliant.
From showrooms to semi-detacheds
The case stems from a series of claims brought by consumers against lenders including Close Brothers and FirstRand, whose motor finance products included payments to brokers that were not fully disclosed to borrowers. In October 2024, the Court of Appeal ruled that such commissions were unlawful unless expressly and transparently revealed.
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It is this judgment that has now been appealed to the Supreme Court, with the Financial Conduct Authority (FCA) granted leave to intervene. The Treasury, which attempted to join the case in support of lenders, had its application rejected.
For mortgage lenders, the risk is that the court’s decision will not remain confined to the car lot. “A judgment which encapsulates commissions in all finance arrangements where there’s non-disclosure … will take you beyond motor finance,” said Benjamin Toms, an analyst at RBC Capital Markets, speaking to the Financial Times. “Mortgage distribution relies heavily on broker remuneration, and many arrangements from earlier in the last decade may not meet today’s standards.”
Former Financial Services Authority chair Sir Howard Davies has criticised the FCA’s historic approach to disclosure regulation, arguing before a Lords committee last year that the watchdog’s lack of clarity had allowed the courts to step into a vacuum.
“My general experience is that if the regulator is very clear about the expectations on firms, then the courts are usually very reluctant to substitute their judgment,” he said. He also highlighted the role of the Financial Ombudsman Service in widening the interpretation of disclosure duties, noting that it “sometimes goes well beyond what the FCA recommended.”
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Such divergences between the courts, ombudsman, and regulator have unnerved mortgage providers, particularly those operating with large intermediary networks. The fear is that the same principles currently under scrutiny in the motor finance world - around fiduciary duty, informed consent, and conflicts of interest - could just as easily be applied to mortgage transactions.
The UK mortgage market is built on an intermediated model. According to FCA data, over 80% of residential mortgage transactions involve a broker, most of whom are remunerated by lenders via commissions rather than charging consumers directly.
While current regulations - under MCOB (Mortgage Conduct of Business) - require brokers to disclose commission arrangements, the depth and clarity of those disclosures has varied over time. In older agreements, some disclosures may have been generalised or buried in pre-contract paperwork.
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Legal experts warn that if the Supreme Court reinforces the idea that non-specific disclosures are insufficient, thousands of legacy loans could be open to challenge. “We are particularly focused on protecting financially vulnerable customers and ensuring they receive fair value,” an FCA spokesperson told Reuters last year, in relation to its wider review of commission-based lending.
The FCA has not yet confirmed whether its ongoing review will be expanded to cover the mortgage sector. However, the regulator has committed to deciding within six weeks of the Supreme Court’s ruling whether a broader industry redress scheme is necessary in the motor finance context. If such a scheme is introduced, pressure may mount for a similar exercise in the mortgage space - particularly from consumer groups and litigation funders.
The potential exposure is significant. While no formal redress estimates exist for the mortgage sector, City analysts suggest the motor finance fallout alone could reach £44 billion. A comparable event in mortgages - even at a fraction of that scale - would be deeply destabilising.
For now, lenders are reviewing historical broker agreements, tightening disclosure procedures, and preparing for a wave of customer inquiries. Yet uncertainty remains. As one senior figure at a major mortgage lender observed privately, “This case could change how we sell mortgages in this country. It’s not just about whether commissions were paid - it’s about whether trust was misplaced.”
