Mortgage brokers are not expected to pay any money towards the Financial Services Compensation Scheme (FSCS) for 2023/2024 due to excess funds in the home finance intermediation class.
The home finance intermediation class closed the year with a £7m surplus which will be used to cover any future costs.
The FSCS does not expect any failures or compensation payments within this sector for 2023/2024. However, legacy claims amounting to £700m are anticipated from previous years.
Although home finance providers, such as banks and building societies, are not FSCS protected they still contribute to the levy if required. Providers have not been required to contribute in 2022/2023 and are not expected to next year.
The general insurance distribution class is expected to pay a levy of £5.3m for 2023/2024, which will impact mortgage firms and advisers which fall into this category. This class closed 2022/2023 with a £1m surplus which will be used toward next year’s levy.
The £5.3m levy will cover firm failures in previous years and any compensation in 2023/2024.
No additional levy announcement is expected for the remainder of this year.
The FSCS said the levy total would remain at £625m for 2022/2023 and reduce to £478m next year.
This is subject to change and is based on expected compensation payments of £592m. This includes £497m for firms that have already failed and £95m for firms which are expected to fail.
The levy is lower than the projected compensation due to surpluses being carried over. This includes £91m in the investment provision class, £86m in the life distribution and investment intermediation class and £26m across other classes.
The current estimate does not include compensation where it is still uncertain as to whether claims will come through, such as firms which will fail due to the British Steel Pension redress scheme. The Financial Conduct Authority will confirm if a scheme will be implemented by the end of this year.
An update on the 2023/2024 levy will be published in spring next year.
‘Levy payers looking for certainty’
Caroline Rainbird, chief executive of FSCS, said: “With the increasing cost of living at the forefront of many people’s minds, we appreciate levy payers are looking for as much certainty as possible. With our latest forecasts, we aim to support our levy payers in their planning by providing as much notice as we can regarding anticipated costs.
“It is during times of economic volatility that FSCS plays a particularly important role in providing stability for consumers, helping increase their confidence and trust in the financial services industry.
“Research conducted in September this year tells us, that of those aware of FSCS, 82 per cent feel more confident taking out a product that is FSCS protected, and 68 per cent are likely to invest more money if the provider is FSCS protected.
“This demonstrates how FSCS’s existence helps to underpin a strong retail finance sector in the UK, and combined with access to sound financial advice, FSCS protection is providing valuable support to consumers.”
Shekina is the commercial editor at Mortgage Solutions. She has over four years’ experience in the B2B publishing market, with previous industries including the accounting, pet, funeral, hospitality, retail and jewellery trades.
She currently reports on current events in the mortgage market and liaises with financial clients to produce sponsored content.
Follow her on Twitter at @ShekinaMS