Portfolio Letter - Mortgage Intermediaries

On 30^th January 2025, the FCA issued a Portfolio letter to the CEOs of Mortgage Intermediaries outlining the new strategy for supervising firms.

Mortgage intermediaries play an important role in matching consumers with home loans. The FCA want to see a thriving and innovative mortgage market where customers receive tailored advice, are paired with suitable products, and high standards are maintained in line with the Consumer Duty.

The purpose of this letter is to set out the current and future priority areas of supervisory focus over the next 2-year period. The key focus is on embedding the Consumer Duty.

Firms are expected to discuss this letter with their respective leadership teams and ensure that the areas of focus are being addressed under existing Consumer Duty work programmes, or if not, how these risks may need to be addressed going forwards. The main priorities and focus are:

• Quality of advice and unsuitable products

Despite the economic changes over the past few years which has resulted in increased interest rates, higher payments for borrowers and financial struggles, customers’ needs and circumstances remain at the forefront of assessing affordability. The Consumer Duty requires firms to go beyond just assessing whether the customer meets a lender’s criteria. They should be ensuring the advice process is designed to meet the needs, characteristics, and financial objectives of the target group of customers.

• High pressure selling and ancillary products

Recent supervisory work conducted by the FCA has shown some firms have a culture driven by sales targets, with advisors financially incentivised to sell products that attract higher rates of commission or fees. In general, incentive schemes should avoid rewarding quantity over quality and firms should regularly review whether incentive schemes which they, or their appointed representatives (ARs), operate could impede staff or the firm from acting in the customer’s best interest and whether they are balanced and rewarding the right behaviours.

• Excessive fees and fair value

While certain products or customer circumstances can make the advice process longer or more complicated and may be reflected in higher fees, firms should not capitalise on this by increasing prices unfairly or without justification. Section 7 of the Consumer Duty guidance sets out the expectation of firms conducting fair value assessments. When performing assessments, firms must assess the total cost to the consumer and ensure it is ‘fair’. The FCA expect firms to be able to demonstrate their products and services offer fair value and justify their decisions to stakeholders.

• Financial promotions

Firms need to ensure that the risks of secured lending are featured prominently and equally alongside the promoted benefits. If advertising is unbalanced, customers are prevented from making an informed decision about the financial product and/or the services being offered.

The Consumer Duty sets out requirements for firms around consumer understanding and this builds on the clear, fair and not misleading standard under Principle 7. Communications should enable the intended recipients to evaluate their options by assessing the benefits, risks and costs associated with those options, and how those options relate to their needs and financial objectives.

The letter also outlines other priorities for firms around ARs. Principal firms should terminate dormant ARs, via Connect, and manage conflicts of interest. PS22/5 outlines how firms are expected to manage their ARs.

And finally, firms need to ensure their details are all up to date and correct, especially around the use of trading names.