Mortgage brokers are not expected to pay an annual levy under the Home Finance Intermediation class of the Financial Services Compensation Scheme (FSCS) in 2025/26, according to the institution’s outlook.
This is despite an overall increase in the total levy from £265m this year to £394m in 2025/26 due to a lower surplus being carried forward, which means funding classes will start with lower opening balances.
The 2024/25 levy remains as forecast in May but £33m is now expected to be recovered, which is double the amount originally expected. This will go towards offsetting the levy.
The FSCS is expecting to pay £367m in compensations next year, compared to £372m in 2024/25.
Home Finance Intermediation
The forecast for the Home Finance Intermediation class remains largely the same as expected in May’s 2024/25 outlook, except for a slight increase of £0.3m in compensation costs down to a rise in new claims and decisions since the last forecast.
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The FSCS said no new firm failures are currently expected for 2025/26, but it does anticipate around £0.3m in compensation payments for firm failures from previous financial years.
However, an anticipated £1m surplus from 2024/25 is expected to cover forecasted costs for 2025/26, making the Home Finance Intermediation class currently exempt from the annual levy next year.
Mortgage professionals who are subject to this class were not required to contribute to the retail pool levy in 2024/25 and are currently not expected to contribute next year.
General insurance distribution
Like the Home Finance Intermediation class, no levy is currently expected for the General Insurance Distribution class next year.
The FSCS is not anticipating any new firm failures and it continues to see a decrease in payment protection insurance (PPI) claims. The expected 2024/25 class surplus of £5m will be carried forward to 2025/26 to cover the costs forecast for this class next year.
Operating model beds in
Other factors driving up the 2025/26 total levy are increased compensation costs relating to self-invested personal pension (SIPP) operator claims.
Increased claims decision volumes following the introduction of the FSCS’ new operating model have also had an impact. The FSCS has brought the majority of claims management in-house, which will be fully embedded in 2025/26.
Martyn Beauchamp, interim chief executive, said: “While the levy is projected to increase in 2025/26, as discussed in previous outlook forecasts, cash surpluses have kept the levy below compensation levels in the last two financial years, as we’ve had significant surplus balances at the start of each year in some classes. This is no longer the case for 2025/26.
“In the next financial year, our new operating model will be fully embedded. Alongside this, we are always looking at ways to further improve our claims processes, working hard to find efficiencies without significantly increasing costs.”
