Paradigm Mortgage Services has urged that regulated mortgage advice should be a requirement for all first-time buyers in a new discussion paper.
In the paper, ‘Mandatory Mortgage Advice for First-Time Buyers: A Proportionate Regulatory Evolution Under Consumer Duty’, the mortgage club said this would represent a “proportionate, evidence-based evolution” of regulation under Consumer Duty.
Paradigm has released its paper after the Financial Conduct Authority (FCA) proposed and introduced regulatory changes, including the removal of the advice trigger to make it easier for some borrowers to get a mortgage directly.
The mortgage club said expanded execution-only mortgage journeys, the removal of prompts to advice, and consumer vulnerability created a “clear regulatory inflection point” for the mortgage market.
The paper said first-time buyers regularly showed multiple vulnerability indicators, such as limited experience with long-term financial products, lower financial resilience, high emotional investment in the home buying process and a lack of knowledge.
Paradigm’s paper also mentioned the FCA’s Pure Protection Market Study, which showed 58% of adults in the UK do not have a pure protection policy, and 72% say their protection needs are unmet.
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The mortgage club said many first-time buyers did not have their protection needs properly assessed.
The paper argued that the execution-only process assumed consumers could independently select suitable mortgages, but said this was inconsistent with the FCA’s own findings around consumer understanding, particularly those buying their first home.
It said the execution-only process could bring foreseeable harm, such as choosing unsuitable products, misunderstanding affordability risks, not considering how lender-specific criteria could impact future borrowing and missing out on protection conversations.
Call for industry support
Paradigm’s discussion paper is available on its website, and the mortgage club is also encouraging industry stakeholders to support its initiative by signing a public pledge and completing a short survey to gauge support for mandatory advice.
The pledge can be signed here: https://www.surveymonkey.com/r/R9T3ZN6
Bob Hunt, chief executive 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.
“The convergence of the removal of the advice trigger, the expansion of execution-only pathways, and the FCA’s own findings around protection gaps, creates the need for a serious debate about whether the current framework continues to deliver consistently good outcomes for first-time buyers.”
Hunt added: “This is not a radical intervention either, as many mortgage market stakeholders already recognise the heightened risks faced by first-time buyers and insist on advice being taken, especially when it comes to high loan-to-value (LTV) borrowing.
“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.”
He said advice should be seen as a minimum standard of protection for first-time buyers and urged everyone who agreed with its stance to read the discussion paper and sign the pledge.
The Association of Mortgage Intermediaries (AMI) has also endorsed the initiative.
Stephanie Charman, chief executive at AMI, said: “AMI strongly supports the principle that advice is essential for first-time buyers. Purchasing a home for the first time is one of the most significant and complex financial decisions a consumer will ever make.
“First-time buyers face a unique combination of challenges, including limited experience of long-term financial commitments, a knowledge gap around mortgage options and the home-buying process, and the emotional pressure of a high-stakes transaction.
“AMI believes that ensuring all first-time buyers access mortgage advice is essential to meeting the spirit and intent of Consumer Duty, closing the protection gap at a critical life stage and building the long-term financial resilience of this important consumer group. Advice is not a luxury for first-time buyers, it is a necessity.”