Second charge brokers have been cautioned by the regulator with a reminder that advisers must “establish clients’ needs and source a suitable product for them based on that”.
Under the Mortgage Credit Directive the rules on advising clients on second charge loans have been brought into line with the MCOB regime for first charge mortgages, requiring evidence of suitability.
But speaking to brokers at the Leeds Mortgage Business Expo Lynda Blackwell, mortgage sector manager at the Financial Conduct Authority, said too many advisers were still not collecting sufficient information about the client’s “needs and circumstances” before advising on products, effectively leading to a failure to address suitability.
She said: “Our review of advice following the Mortgage Market Review highlighted a number of concerns in the first charge market that read across into the new regime for seconds and something that second charge firms should be taking note of.
“It’s about not simply allowing a customer’s preferences to dictate the product they end up with but you making an assessment of what’s suitable for them given their actual needs and circumstances.
“In our thematic review there were some cases where we saw advisers shoehorn customers into a product that was least worse out of their available range when they didn’t have the product appropriate for the customer – the ability to overpay, for example.”
Blackwell confirmed that the FCA is now planning to conduct compliance visits across the second charge market.
She added: “It’s really important that if you are new to all of this, you get to grips with it quickly and ensure you’re not falling short of the new requirements.
“I’ve spoken in the past about the need to avoid the temptation to cut corners as demand increases.
“It’s really important that you’re not tempted to let standards slide as you start to get busy and have less time to ensure all the paperwork, the fact finds and all the important record keeping is kept up to date.”