The most recent ‘Dear CEO’ letter sent to owners of advisory firms was particularly interesting for many reasons, but specifically in the context of what the regulator is likely to be looking at from an advisory perspective.
What was also notable was the split in product priorities, from first- to second-charge and on to the lifetime mortgage market, as well as highlighting specific potential areas of concern such as pressure-selling, excessive fees, risks versus benefits and the like.
For me, it was interesting that the FCA only seemed to mention ‘vulnerability’ here in the context of lifetime mortgages, when we might all believe that ‘taking account of characteristics of vulnerability’ should be a standard part of any adviser’s client interaction, regardless of their age.
It got me to thinking about the potential ‘vulnerability’ elements of being a first-time buyer, for example. Given that, by definition, this will be the very first time that these individuals have gone through the mortgage process, is it not likely they could potentially be in a vulnerable state?
And, of course, would-be borrowers can be vulnerable at a given moment in time, not necessarily in a constant state of vulnerability.
One would assume that the chances of being vulnerable are heightened at the point when you are going through a process for the first time, and of course, when you are dealing with significant amounts of money and potentially long-term consequences, responsibilities and financial commitments.
To me, this might well be a demographic that is being overlooked in terms of the potential for consumer harm that might be done by any number of stakeholders in the process, not just advisers I might add.
Regardless of whether the individual feels as clued up as they might possibly be on the process for buying a first property, regardless of how much they have read or watched on YouTube, regardless of the advice they might have been given by friends or family, there is always likely to be an experience/knowledge gap here.
That gap is often filled by advice – and we know that we have some excellent advisers working right across the industry – but one wonders whether potential vulnerability might be dismissed simply because the client is younger, and we have a tendency to see vulnerability as something much more likely in older borrowers.
Of course, the reality of the situation might well be the opposite. Borrowers in their 50s/60s/70s and beyond, who have gone through the process a number of times, are financially/mortgage/property savvy, might be in a far better position than their first-time buyer counterparts who have no individual experience to fall back on.
This is clearly an interesting conundrum for lenders and particularly in my view advisers. Could they recognise a potentially vulnerable first-time buyer, for example? We often talk about older borrowers, for example, being coerced into signing up to a lifetime mortgage or a later life loan by a family member.
Could we spot a first-time buyer who was potentially being coerced, or would we simply look at the financials, the fact they met affordability, and they seemed to want to buy? It sounds somewhat far-fetched but again when it comes to significant amounts of money, and 25/30/35-year commitments, would we want any individual to be starting off on the wrong foot, let alone being somehow forced into making such long-term decisions.
It will be interesting to see how the regulator might approach the potential consumer detriment here in terms of first-time buyer borrower vulnerability.
The other point to add here is around ensuring those first-time buyers have sufficient protection. People – particularly the younger population - tend not to think, or believe, that anything like accident, sickness or unemployment can happen to them, but how many are being presented with options to protect their mortgage repayment in the event of anything like this happening? Especially the unemployment element, which might be more relevant for a younger client demographic. That needs to be prioritised, and I can’t believe with Consumer Duty that the regulator won’t be all over this.
How, for instance, might advisers/lenders and other stakeholders be required to work with those presenting as diagnosed with ADHD, or other disorders? How can we ensure that everyone is fully aware of what they are signing up to, is aware of the potential risks, etc? How might we as an industry be satisfied that the borrower understands exactly what is going on, and isn’t subject to outside interference?
In the days of Consumer Duty, these questions feel just as pertinent for those wanting a mortgage to buy a first property, as those who might want to release equity later in life. I am intrigued at how the regulator might take this forward in the future, and how the industry may have to shift its patterns to be more au fait with these potential customer issues.
