Mortgage advisers will be liable under the proposed regulatory regime if they recommend a product to a client who subsequently falls into arrears, unless they follow regulation to the letter.
During the panel session at The Mortgage Event in Bristol, Andy Young, head of mortgage services at Misys, asked the Financial Services Authority (FSA) how it would interpret the guidelines as they stand.
Young asked: ‘The FSA has stated that part of the sales process now encompasses suitability. And the first stage is assessing whether the applicant is suitable per se, so affordability has to be checked. If the broker is responsible for checking affordability, and soon after the loan is accepted the borrower gets into arrears, can the broker be sued?’
An FSA spokesman later said the requirements for suitable advice were contained in Section 12 of CP146 which confirms brokers must undertake an assessment of affordability.
It states brokers will also need to assess future affordability of the mortgage, based on the consumer’s likely income prospects, and any likely changes in the consumer’s outgoings or other resources.
The spokesman said: ‘Obviously we need to take a common sense approach to this. But advisers will need to make sure that they fill in the pre-application illustration, so they have a record of it if the individual does query it in the future.’
John Malone, national mortgage manager at Prudential, said: ‘There has to be an element of common sense. If the broker has been reasonable and done everything they can ‘ and written it down ‘ I do not see how they could be held responsible. Events can always impact your best intentions. They could be overtaken by a whole series of events, they could lose their job or get divorced, and how can you plan for that?’
Such queries need to be clarfiied and will form part of the campaign currently being undertaken by Mortgage Solutions. All questions put to the regulator by brokers at the seven Mortgage Events are being compiled into an official submission on behalf of all the advisers who attended. Each event has featured speakers from the FSA discussing what it hopes to achieve with CP146, and have allowed delegates to address their concerns directly to the regulator. The Mortgage Event was attended by almost 2,000 mortgage advisers.
The campaign has been welcomed by the FSA, which cancelled one of its own roadshows to attend The Mortgage Event.
A spokesman for the FSA said: ‘Obviously, we would be very happy to receive all contributions to the consultation paper. The whole point is to get the smaller brokers interested and to respond.’
The final submission will be made before the 11 November deadline, so brokers still have time to send in their queries and suggestions.
Please send your comments to: regulationresponse@incisivemedia. com by 31 October.