Mortgage regulation: Moving in right direction on consumer benefits
FSA/PN/096/2006
27 September 2006
Consumers are actively shopping around for their mortgages and consumers who receive Key Facts documents from mortgage firms can understand the risks and features of the mortgages they take out.
These are among the findings from the first stage of a review by the Financial Services Authority (FSA) into the effectiveness of its mortgage regime which was introduced nearly two years ago.
The main focus of the review was on pre-sale disclosures and firms’ advice and selling standards to establish whether the FSA’s new conduct of business rules were delivering the intended benefits for consumers.
The review identified that over 75% of consumers shop around for their mortgage. Consumers are also using the Key Facts Illustration (KFI) in a number of ways – including: to compare mortgages; to consider the risks of mortgage products; and to decide if a mortgage is right for them.
Dan Waters, Director of Retail Policy Division at the FSA, said:
"The review so far suggests things are moving in the right direction, although changes to consumer behaviour are likely to happen only gradually. Mortgage regulation is still relatively new and we have planned the effectiveness review in stages to identify trends and measure progress against the intended outcomes over time."
These findings also confirm the importance of firms giving out Key Facts disclosure documents to their customers as our rules require. Well-informed consumers are essential for a competitive market, and Key Facts documents are designed to be clear, fair and not misleading and to help consumers shop around to get a good deal.
The next stage of the review, to be carried out next year, will focus on parts of the mortgage market where the FSA believes there is more likely to be consumer detriment including lifetime mortgages and the sub prime market. It will also will look further at whether consumers are taking out suitable and good value mortgages and whether they are treated fairly over the life of the mortgage, including when they go into arrears.
Notes to editors
- The full Report of Stage One of the Review, and other related documentation, is available on the FSA Website.
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The scope of the Mortgage effectiveness review was set out in FSA Press Notice 116/2005. This highlighted that the review would focus on how the new mortgages regulation was delivering the following outcomes:
Outcome 1: Consumers shop around for mortgages
Outcome 2: Consumers understand whether they are being given advice or information by firms
Outcome 3: Consumers better understand the risks and features of the mortgages they take out, including affordability risks
Outcome 4: Consumers take out suitable and good value mortgages
Outcome 5: Consumers are treated fairly over the life of the mortgage, including when they go into arrears.
Stage One focused on the first three outcomes and partially on Outcome 4. Stage Two will look at Outcomes 4 and 5. -
Methodology: In Stage One the FSA targeted questions from different angles, using different pieces of research to ensure the findings were robust (research triangulation). Three separate pieces of research were commissioned: qualitative consumer research on mortgage disclosure; quantitative consumer research on the mortgage purchasing process and mystery shopping looking at both the advice process and information only (or non-advised) sales. There was also an in-house market analysis study looking at price dispersion and the efficiency of consumer purchasing decisions.
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The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
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The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve its business capability and effectiveness.