‘A change is as good as a rest’ is a saying you hear often, normally from people who don’t actually work for a living or those who are able to delegate every task they are given. It’s a saying which is easily undermined. For instance, if you worked 10 hours a day plucking chickens, would you consider spending the next day sweeping up feathers, the equivalent of having a rest? I doubt it.
Change is necessary of course. Without change we’d all still be pond-life. Change, though, does not always bring benefits. I’ve never really come to terms with a Marathon now being called a Snickers, or Jif becoming Cif. Have any of us ever really understood the decision of P.Diddy/Puff Daddy/Sean ‘Puffy’ Coombes to change his name so regularly? I doubt it.
Facing up to change
Of course, the broker community has had to face up to plenty of change in the past few years, none more so than that brought about by the statutory regulation of the sector. Having to deal with all this has been a big ask and there’s no guarantee that the Financial Services Authority (FSA) won’t change the rules in the future. The FSA recently conducted a review of the effectiveness of the mortgage regime and did say there could be changes to the rules depending on the results it received.
The review into the rules’ effectiveness asked if they were delivering the intended benefits for consumers. The results were published last month, with the main focus on the pre-sales disclosure and firms’ advice and selling standards. The FSA reviewed this by undertaking three separate pieces of research: qualitative consumer research on mortgage disclosure; quantitative consumer research on the mortgage purchasing process and mystery shopping looking at both advised and non-advised sales. The FSA plans to look at different parts of the mortgage regime at different stages and identify trends and measure progress against the above outcomes over a period of time. Here is a selection of key findings.
Outcome one – consumers shop around for mortgages
- The number of people obtaining product information from more than one firm has increased from 75 per cent in 2004 (Source: Council of Mortgage Lenders (CML)) to 77 per cent in 2006 (Quantitative research).
- Consumers are able to identify the key risks and features of mortgage products and compare mortgages using Key Facts Illustrations (KFIs) (Qualitative research).
- Average interview length – 47 minutes face-to-face and 28 minutes over the telephone. 61 per cent felt the interview length was ‘about right’ and 21 per cent felt it was slightly short (Mystery shopping).
- Outcome two – consumers understand the difference between advice and information
- Shoppers could understand whether they have received advice or information only when they received Initial Disclosure Documents (IDD) (Mystery shopping).
- Consumers find the IDD a useful and accessible document, and can identify and discuss key messages about the level and scope of service (Qualitative research).
- Outcome three – consumers better understand the risks and features of the mortgages they take out, including affordability
- Consumers can use the KFI to identify and discuss the risks associated with taking out a mortgage; they felt it was a useful prompt for further questions (Qualitative research).
- 26 per cent of consumers who definitely recalled receiving a KFI confirmed it had made them consider the risks of taking out the product, and 37 per cent used it to decide if it was the right mortgage for them (Quantitative research).
The FSA’s analysis suggests consumers have continued to ‘make efficient purchasing decisions since regulation, although there is no evidence of an increase in efficiency’. The FSA says it has found ‘price dispersion remains fairly constant and there is evidence of an increase in prices’. This, the FSA says, could be put down to a competitive market and firms passing on the costs of regulation to borrowers.
The FSA does say consumers who want the best deal ‘generally need to shop around, or go to a broker who will search the market for them’. It asked consumers which information and advice sources they found helpful when considering which mortgage to take. Of greatest importance were IFAs and intermediaries. 57 per cent of consumers used an intermediary – an increase on 2003 where the figure for a similar survey (Source: GfK FRS) was 42 per cent. Product sales data (PSD) from lenders shows that ‘intermediated sales now represent approximately 58 per cent of the market’. Pleasingly, 94 per cent of mystery shoppers who saw a broker thought the firm was professional and 78 per cent would recommend the broker they saw. The positive impact of mortgage brokers in the market can be seen from these figures.
The conclusions only relate to the prime mortgage market but overall, the FSA says ‘where firms comply with the requirements set out in MCOB’ the mortgage regime is operating effectively. The FSA says there are ‘pockets of non-compliance’ and is disappointed that some of these ‘relate to the basic requirements of the disclosure regime’.
The pleasing news is there will be no MCOB changes as a result of stage one of this review. The FSA is ‘mindful that any future changes to MCOB will need to take account of any proposals in the European Commission’s White Paper on mortgages due in 2007’. The FSA will be discussing with stakeholders any areas of MCOB which could be simplified alongside its move to a more principles-based regulatory regime. AMI has long supported the need for industry stability at this time and believe the FSA’s decision not to make any changes is the right one. The FSA clearly has one eye on the White Paper and has decided to hold any potential MCOB changes until its publication.
We feel it would have been of more benefit if the FSA had compared pre-regulation advice and sales with the post-regulation process. This would have given the industry a better idea of the impact of regulation and whether consumers were seeing the true benefits the rules were supposed to bring.
