Debt consolidation can feel like a straightforward way to improve affordability and simplify a customer’s financial position, but the FCA’s findings reinforce that it should always be treated as a suitability-led decision rather than a default recommendation. Advisers should be confident they are not simply facilitating borrowing but actively assessing whether it is the most appropriate outcome for the customer’s wider financial circumstances.
A key starting point is to understand the root cause of the customer’s unsecured debt. Without this, there is a risk that consolidation only addresses the symptom rather than the underlying issue. In some cases, customers may have ongoing spending pressures or financial behaviours that would remain unchanged after consolidation, meaning the risk of re-accumulating debt remains.
It is also important to consider whether consolidating debt into a mortgage genuinely improves the customer’s long-term position. While monthly payments may reduce, the overall cost of borrowing often increases significantly due to the extended term. Advisers should ensure this is clearly understood and not overshadowed by short-term affordability improvements.
Ultimately, advisers should only proceed where they can clearly evidence that consolidation is suitable, affordable, all alternatives are discounted and demonstrably in the customer’s best interests. If there is any uncertainty, further exploration of alternatives should always take priority.
