In the first of a series of blogs on mortgage distribution, we explore some of the key observations on the mortgage advice journey through an evolving regulatory environment, and some key considerations as firms look to assess the impact of Consumer Duty.


The mortgage market review (MMR) implemented in April 2014 ensured that the majority of mortgage customers received advice and that it was not possible to proceed without advice in some instances. This change in approach saw a marked change in the distribution model of mortgage products with intermediaries and brokerages now accounting for nearly 80% [1] of all mortgage applications within the industry. MMR was followed by the Mortgage Market Study (MS16/2) in March 2019, which found that the market was generally working well, although the FCA indicated that there is still potential for customer harm particularly where firms advise their customers to purchase an unsuitable product which does not meet their needs and circumstances. 

The FCA updated its Consumer Duty proposals in December 2021 (CP21/13: A new Consumer Duty), expected to be finalised in July 2022 with implementation set for April 2023. These changes are seen as a ‘paradigm shift’ in the way firms are expected to treat retail customers across the financial services industry.  The mortgage market must be ready to react to these changes. This blog explores the key challenges firms face when providing advice across both traditional first and second charge market, and also the later life mortgage market.


Whilst the key drivers of suitability within the mortgage market are outlined within MCOB 4.7.2R, the level of justification and explanation required to support the product recommendation for customers also depends on the complexity of the product, the customer utility of the product and the availability of alternative options. This is because the risk of customer harm as a result of an unsuitable mortgage recommendation is potentially greater where there may be a lack of customer understanding regarding the product or there may be alternative options which clearly or potentially better meet the customer’s needs. The consumer duty proposals are likely to increase expectations in this regard given customer understanding is one of the four key outcomes in the firm-customer relationship. The responsibility to demonstrate that a customer understands the key product features and the advice recommendation rests with an advisor. Firms are required to demonstrate this as part of their advice processes. Firms should take into consideration the following as part of their advised sales policies and procedures:

  • How to ensure that customers fully understand the advice they have been given and the reason that a certain product has been recommended and other products have been discounted?
  • How to ensure that advisors document that the customer has fully understood the advice they have been given and the reason that a certain product has been recommended and other products have been discounted?
  • What additional controls are in place to ensure customers receive suitable advice where the customer may be at greater risk of harm, or the product may be considered to have lower utility with alternative options available?
  • Where customers are making financial decisions that may not be in their best interests, such as borrowing on an interest only basis until the age of 95 with sale of property as the repayment vehicle, how do you challenge their assumptions and provide sufficient information so that they understand the financial risks and implications?

Understanding financial circumstances within the advice process

Although the responsibility for assessing affordability rests with the lender, the role of an advisor is to make a suitable product recommendation based on, amongst other things, the financial needs and circumstances of a customer, of which their ability to afford the mortgage is a critical aspect. This is typically captured through an income and expenditure form or a budget planner to determine the customer’s net free income to be able to meet their monthly mortgage repayments. It is a relatively straightforward task to determine a customer’s income when they are employed however complexities can arise where the customer may have non-standard income patterns such as those who are self-employed, a company director in receipt of dividend payments, a contract worker, or heavily reliant on investment income from other sources (such as a portfolio landlord or an investment portfolio). In terms of assessing expenditure, the majority of firms provide advice based on a combination of customer declarations and bank statements to understand the expenditure of a customer, unrealistic declarations are sometimes not challenged by an advisor. This can lead to the use of inaccurate income and expenditure calculations by advisors which may result in a term, repayment method or product recommendation being made on potentially incorrect financial information, making it more difficult to demonstrate suitability of the advice. The risk of harm increases further in the current environment with interest rates and inflation already beginning to rise within the UK economy. It is therefore imperative that firms use independent data sources and their own experience of rising costs/household expenditure to challenge customer declarations that appear inaccurate. Firms should take into consideration the following as part of their assessment of financial circumstances:

  • How do you ensure that income and expenditure is appropriately calculated taking into consideration the sustainability of income over the lifetime of the mortgage?
  • How do you ensure that this information is appropriately challenged by advisors as part of the mortgage advice journey to ensure an appropriate budget is agreed with a customer and a suitable term can be recommended?

Advising customers in retirement

In 2021 UK Finance published that the proportion of new mortgage lending to homeowners with a term ending after the main borrower’s 65th birthday makes up more than 50 per cent of all new homeowner loans[2]. This is the first time this proportion has been reached since records began, and demonstrates that later life mortgage lending is set to become more significant in the future. With an ageing population, as well as rising house prices which has led to higher value loans, lenders have responded by increasing the age to which they are willing to lend to customers. This has created additional risks within the advice process as customer’s income and expenditure is likely to change significantly throughout the lifetime of the mortgage and there is an increased likelihood that customers may die during the term of the mortgage or may be forced to downsize in much later life. It is paramount that these risks are adequately explained to customers as part of the advice process to ensure that customers understand the financial risks and implications associated with borrowing in later life. The consumer duty requirements are likely to raise expectations within the industry further and firms will need to demonstrate that the customers understood these risks and that their assumptions with regards to affording a mortgage in retirement or other alternative options have been challenged, where appropriate, to ensure that any recommendation is in their best interests. Advisers should take into consideration the following as part of their advice proposition when recommending lending into retirement: 

  • How should advisors explain the financial risks and implications associated with lending in later life such as sole survivor affordability and customers potentially downsizing in much later life due to have to sell the residential property as a repayment vehicle?
  • When should firms consider it appropriate for an advisor to undertake additional due diligence regarding the financial circumstances of a customer in retirement when the mortgage is entering retirement? For instance, five years from retirement, 10 years from retirement, 15 years from retirement.
  • How do you ensure that advisors are challenging retirement ages where these are unrealistic?


[1] ( The new ‘normal’ – prospects for 2022 and 2023, IMLA, January 2022

[2] News in brief - 20 September 2021 | UK Finance