Added cost and conflicting information are just some of the concerns that have been sparked by the new mortgage regulation proposals announced by the Financial Services Authority (FSA).
The proposals are aimed at improving customer information and giving a fairer deal to people who fall into arrears. If approved, mortgage lenders and administrators will also need to be authorised by the FSA. Although the regime will exclude mortgage advice, industry sources claim that the rules will have far-reaching effects on advisers.
Proposals under the new regime include advisers supplying customers with a ‘pre-application illustration’ ‘ including comparative tables designed to set out terms and conditions in a standardised format, approval of IFA advertising through an FSA authorised firm, the provision of regular mortgage statements and help for customers who fall into arrears.
Susan De Mont, manager of mortgage policy at the FSA, said: ‘The FSA is proposing to introduce rules to improve the quality of information and cut through the jargon that borrowers receive. Borrowers should therefore find it much easier to compare mortgages and shop around for the best deal.’
But the introduction of comparative tables has raised concerns among both lenders and advisers. Mark Chilton, managing director of Savills Private Finance, said that if the FSA takes on an advisory role, it may tread on advisers’ toes and could mean customers are faced with conflicting information. ‘For those brokers who merely act on price, comparative tables may replace their role entirely.
‘From the FSA’s perspective, there is a risk that it is putting itself effectively into an advisory role. Questions need to be asked concerning what happens if the consumer takes out a loan following advice provided by the FSA and if the information is incorrect ‘ who is liable?’ he said.
Mark Robinson, head of mortgage development at Abbey National, said that cost comparison over the lifetime of loans would provide clearer information. ‘APR is still held up as the best benchmark despite the FSA’s own research showing that there is very little understanding among customers. Product comparisons should be based on how many years borrowers think they will keep a product. It could be argued that lifetime cost based on a range of lifetimes would be a clearer comparison,’ he said.
The fact that advisers will have to get all advertising approved by an FSA authorised firm has also caused concern. Chilton said that it could mean extra costs for advisers. ‘This may portend the launch of a group of specialists who will carry out the necessary approval of non-regulated business ‘ merely adding another cost tier into the regulatory process,’ he said.
For more information on the FSA’s proposals, see pages 34-37.