Mortgage broker fees to rise as FSCS levy set to hit £1bn

Mortgage broker

The FSCS is also forecasting an ongoing rise in complex pension advice claims

The Financial Services Compensation Scheme (FSCS) has forecast that its 2021/22 levy will be £1.04bn, a 48% increase on last year, due to an expected increase in firm failures related to Covid-19.

In its Plan and Budget for 2021/22, mortgage brokers in the ‘Home Finance Intermediation’ category will be charged £22.9m towards the levy, up from £3m last year.

The FSCS is also forecasting an ongoing rise in complex pension advice claims and further failures of self-invested personal pension (SIPP) operators. Additionally, it expects pay-outs related to recent failures in the General Insurance Provision class.

The Scheme says its current forecast ensures it can pay out an expected higher volume in claims (a 72% rise compared to the 2020/21 original forecast, and a 6% increase on the latest forecast for 2020/21) over the next financial year.

In the Plan and Budget, FSCS has revised the 2020/21 supplementary levy from £92m to £78m, due to fewer LCF claims being upheld than forecast in November 2020.

Taking account of class surpluses that will be used to offset the levy, £44.5m will be invoiced for the supplementary levy by the FCA in early February.

FSCS will invoice the largest 1,000 regulatory fee payers a 50% advance payment towards the levy in March 2021.

As well as a rise in compensation costs, FSCS’s management expenses budget being consulted on is £90.5m. This is a £7.3m (9%) increase on the forecast outlined in the November 2020 Outlook, and a £12.4m (16%) increase on its 2020/21 budget. The increase is due to a rise in the anticipated number of claims as well as the growing complexity, and therefore processing costs, of claims.

Caroline Rainbird, chief executive of FSCS, said: Ongoing trends in a number of classes, and the widespread economic impacts of Covid-19, mean we are anticipating an increase in firm failures over the next financial year. This will likely lead to a rise in the volume of claims, many of which are complex, and therefore an increase in the levy.

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