Navigating the Future of the Mortgage Market: Insights from FCA Discussion Paper DP25/2
This summer has been anything but ordinary in the world of finance. While many took to the skies for vacations, the Financial Conduct Authority (FCA) unveiled a thought-provoking discussion paper, DP25/2: Mortgage Rule Review: The Future of the Mortgage Market.
At the Association of Mortgage Intermediaries (Ami), our focus throughout August has been to analyze this paper astutely and collaborate with our members on a comprehensive response.
Key Themes of the FCA Discussion Paper
The FCA discussion paper outlines ambitious objectives for the mortgage market, including:
- Support Sustainable Homeownership
- Strengthen Responsible Lending
- Future-Proof Later-Life Lending
- Enhance Consumer Understanding
- Drive Innovation
Each of these themes holds substantial weight and reflects the need for a forward-thinking approach to mortgage lending. As we explore critical aspects like affordability and product innovation, the vital contribution of professional advice mustn’t be overlooked.
The Risks of a Two-Tier Advice System
The FCA highlights that a divided advice system could lead to:
- Confusion among borrowers
- Poor financial outcomes
- A detrimental “race to the bottom” in service quality
We’ve already seen some shifts in the market, such as lenders reevaluating affordability stress tests and the Bank of England easing restrictions on high loan-to-income ratios. While these adjustments are promising, it remains too soon to assess their full impact.
The Role of Advisers in the Mortgage Market
Advisers are crucial in understanding how borrowers respond to changes in affordability and product offerings. They possess first-hand insights into what solutions work effectively, making their contributions invaluable.
Aligning Innovation with Consumer Needs
Innovation in the mortgage sector is commendable, but it must align closely with consumer needs. A well-intermediated market provides lenders with a safety net to explore new ideas. Mortgage brokers serve as a pivotal feedback loop, balancing innovation with responsible risk-taking.
It’s essential to recognize that addressing the needs of first-time buyers without also tackling the existing housing stock crisis risks perpetuating a supply-demand imbalance, which could counteract any positive developments.
Later-Life Lending: A Growing Concern
One major focus of the FCA is later-life lending. The paper outlines two critical issues regarding older borrowers:
- Increased entry into the market at later ages
- Longer borrowing terms extending into retirement
Innovative products, such as retirement interest-only mortgages, can be part of the solution. However, collaboration across the sector is paramount, ensuring a smooth transition between standard mortgage advice and equity release options. The FCA’s proposal for all advisers to hold qualifications in equity release can bolster comprehensive guidance.
The Importance of Consumer Protection
One key concern is the suggestion that advisers may provide higher-quality advice than regulatory standards require, potentially leading to a dichotomy of “standard” versus “enhanced” advice. This notion can be perilous; mortgage decisions are complex, necessitating trustworthy and consistent guidance for consumers.
Moreover, Ami’s Viewpoint research reveals that home purchases remain the primary trigger for protection sales, underscoring the necessity of including consumer protection discussions in the broader context of mortgage reforms.
Future-Proofing the Mortgage Market
As the dialogue surrounding mortgage regulations evolves, any changes to disclosure requirements—such as simplifying the European Standardised Information Sheet—should be mindful of costs and potential oversimplifications that could jeopardize the advice process.
The Role of Artificial Intelligence
In the age of technology, the paper raises pertinent questions about the implications of AI-assisted advice. As we navigate these complexities, Ami’s stance is clear: the value of conventional advice remains paramount in shaping a successful future for the mortgage sector.
Conclusion
As we prepare our formal response to the FCA, our primary objective is clear: underscore the significance of professional advice as the cornerstone of a thriving mortgage landscape.
Stephanie Charman
Chief Executive, Association of Mortgage Intermediaries
This article first appeared in the September 2025 edition of Mortgage Strategy. For subscriptions to our monthly print or digital magazine, click here.
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