Call for industry support to boost advice to prevent mortgage mis-selling

Paradigm Mortgage Services is calling for mandatory mortgage advice for all first-time buyers in a new discussion paper published this week.

It is also calling on industry stakeholders to sign a public pledge and complete a short survey designed to gauge support and build wider industry engagement for better education, warning that otherwise the industry risks echoing previous pension mis-selling.

It says that such advice would represent a “proportionate, evidence-based evolution” of regulation under Consumer Duty.

Already receiving support

Paradigm’s paper, ‘Mandatory mortgage advice for first-time buyers: A proportionate regulatory evolution under consumer duty’, has already received support from mortgage stakeholders, including the Association of Mortgage Intermediaries (AMI).

The launch follows recent FCA regulatory changes, including the removal of the long-standing mortgage advice ‘interaction trigger’ as part of last year’s Mortgage Rule Review.

Paradigm argues that the combination of expanded execution-only mortgage pathways, the removal of structural prompts to advice, and growing evidence of consumer vulnerability creates a clear regulatory inflection point for the mortgage market.

The company says that first-time buyers are particularly vulnerable. They tend to have limited experience with long-term financial products, lower financial resilience, high emotional investment in the home-buying process, and significant information asymmetry relative to lenders and advisers.

Lack of protection also an issue

Paradigm has also highlighted the recent FCA’s Pure Protection Market Study, published in January this year, which found 58% of UK adults do not hold any pure protection product and that 72% of identified protection needs remain unmet, despite the fact that the home-buying process creates a real need for the consideration of protection products.  

The paper warns that an execution-only mortgage process assumes consumers can independently identify and select suitable mortgage products, yet multiple risks are faced. These include selecting unsuitable mortgage products, misunderstanding affordability risks in a volatile rate environment, failing to consider lender-specific criteria affecting future borrowing, and missing essential protection conversations.

The company has likened the process to previous pension mis-selling issues, warning that change is needed now to prevent harm, rather than compensating for it later.

Bob Hunt, chief executive officer at Paradigm Mortgage Services, said: “In a market where the stakes are so high, and where vulnerability can often be inherent, rather than incidental, mortgage advice for first-time buyers should not be optional. 

“What we are proposing is a proportionate and targeted safeguard for a consumer group making one of the biggest and longest-term financial commitments of their lives.”

The full paper can be viewed here: https://www.paradigm.co.uk/mortgages/mandatory-mortgage-advice-for-first-time-buyers, while the pledge can be signed here: https://www.surveymonkey.com/r/R9T3ZN6