Mandatory first-time buyer advice risks removing consumer choice, brokers warn
Mandatory advice for first-time buyers, put forward by Paradigm in a recent discussion paper, has been rejected by a number of advice firms as an unnecessary measure and removal of consumer choice.
Rather than taking choice away, some in the industry believe that brokers should make the advice proposition so compelling that consumers would always choose this path, rather than going it alone.
‘You don’t know what you don’t know’
Paradigm’s discussion paper was endorsed by several mortgage lenders – including April Mortgages and OSB Group – and received the backing of the Association of Mortgage Intermediaries (AMI), with chief executive Stephanie Charman stating that advice for first-time buyers was a “necessity”.
Paradigm claims that the removal of the interaction advice trigger, expanded execution-only mortgage journeys, and consumer vulnerability created a “clear regulatory inflection point” for the mortgage market.
Helen Pierson, director of Mortgage Advice Bureau (MAB) New Homes, agrees first-time buyers should receive mandatory advice. She says first-time buyers are unaware of what’s possible when it comes to getting a mortgage.
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“You don’t know what you don’t know, which is why early advice is so important.
“Misconceptions surrounding deposits, financial commitments, age and adverse credit are resulting in plans to buy being put on hold unnecessarily, which is neither good for individuals or a housing market heavily reliant on first-steppers,” she notes.
A recent survey by MAB revealed that 73% of first-time buyers were unaware of 95% mortgages, for example, while 70% had not heard of track record mortgages.
She adds: “Advice isn’t about trying to get everyone a mortgage today, it’s about providing a realistic framework for achieving eventual goals, with help and guidance from qualified experts.”
But not everyone shares this view.
Mandatory advice ‘could add unnecessary friction’
Richard Dana, Tembo Mortgages’ chief executive, says the current approach to first-time buyer advice is fit for purpose. And with no mis-selling scandals on the horizon, the model appears to be working just fine.
He notes: “It is very easy to get a rough idea of rates from a comparison table – so for straightforward mortgages, it seems unnecessary to force people into an advice journey.
“A blanket requirement would feel disproportionate and could add unnecessary time, cost and friction to what is already a complex journey.”
Michelle Niziol, chief executive of IMS Property Group, does not think removing consumer choice is the right direction for the industry to take and agrees with Dana that some first-time buyers are financially capable of making their own choices.
“Provided they fully understand what they’re giving up by not receiving regulated advice, I don’t believe they should be forced into it,” she says.
Kate Davies, the Intermediary Mortgage Lenders Association’s (IMLA’s) chief executive, says first-time buyers should “almost always” take advice but questions whether compulsion is the right mechanism to bring this about.
She says: “It’s worth remembering that proportionate safeguards already exist: lenders require advice where products carry particular complexity, and the Consumer Duty obliges every firm to ensure good outcomes whichever route a borrower takes.
“With those protections in place, it’s also important to recognise that first-time buyers come in all shapes and sizes. Some will be navigating complex financial circumstances and benefit enormously from professional advice. Others may have relatively straightforward borrowing needs, significant family support or lower loan-to-value requirements. A proportionate regulatory framework should be capable of recognising those differences.”
Making advice the path of least resistance
Davies argues that rather than mandating that all first-time buyers take advice, the challenge for brokers and lenders is to make the case so compelling that first-time buyers see its value all by themselves.
Removing any points of friction is another way to reduce the number of first-time buyers turning away from whole-of-market advice.
John Fraser-Tucker, head of mortgages at Mojo Mortgages, says: “While we support the emphasis on the need to protect first-time buyers, making advice strictly mandatory by law is a complex issue. For many first-time buyers, the fear of high broker fees pushes them toward going directly to the lender themselves.
“By championing free, highly accessible, fee-free brokering, we can give first time buyers guided access to the full range of mortgage options, without stripping away their autonomy.
“Forced mandates should be a last resort; making advice the path of least resistance is the smarter, more consumer-friendly solution.”
The case for mandatory education
Improved education for first-time buyers is something Fraser-Tucker, Niziol and Rowan Frayling, managing director of J Finance, all advocate for to ensure consumers are making an informed decision before choosing to opt out of advice. Frayling goes a step further, however, saying: “I don’t think mandatory advice is the right answer, but I do think mandatory education is worth serious consideration. There’s a real difference between requiring every first-time buyer to go through a full advice process and simply ensuring they can’t proceed completely blind to what they’re signing up to.
“This isn’t without precedent either: during my time at a high street bank, and again when my partner took out her first mortgage a few years ago, staff were required to play explanatory videos covering key elements of the transaction before it could complete, even for more straightforward products like bank accounts.
“Extending that principle of structured, mandatory education, whether through video content or a proper individual walk-through, would assist greatly without forcing every first-time buyer into a full advice relationship they may not want or need.”
Mortgage Solutions asked the Financial Conduct Authority (FCA) if the removal of the interaction trigger has left first-time buyers vulnerable and whether it planned to review or act on Paradigm’s call for mandatory advice.
A spokesperson for the FCA said: “Consumers often seek support and advice when buying their first home – which is why around 97% of new mortgage sales since 2015 have been advised. Our recent changes were designed to give consumers more choice and flexibility in how they interact with lenders. We continue to expect firms to be able to identify customers who may need advice.”
