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Commissions at large brokers can cause product bias and need to be examined – Star Letter 13/12/2019

  • 13/12/2019
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Commissions at large brokers can cause product bias and need to be examined – Star Letter 13/12/2019
Each week Mortgage Solutions and its sister title Specialist Lending Solutions select the best contributions from readers as Star Letter.


The news that the Financial Conduct Authority (FCA) is probing the equity release market proved a major talking point and sparked a discussion between readers as they reacted to the article: FCA’s review into equity release market needed ‒ analysis.

It kicked off with Andy Wilson, who said: “I believe an FCA review of later life lending could be a good thing for the equity release sector. 

“The Mortgage Market Review produced some positive changes to the mortgage market – the strengthening of affordability criteria and practically outlawing self-certification for example – and hopefully the outcome of a review of borrowing by the older community could do something similar. 

“We have already heard recent commentary about the need for retirement interest-only to be made easier to access, and also criticism of the effects of long-term roll-up of lifetime mortgage debts.

“Also under scrutiny must be the methods of applying early repayment charges to equity release lifetime mortgages, especially the gilt linked method which can produce penalties for paying the loan off early of up to 25 per cent of the original loan when gilt yields have fallen,” he said. 

Wilson added: “I would also like to see some recognition that in the same way equity release advisers need a good degree of mortgage knowledge, then mortgage advisers who give advice on retirement interest-only should have some means of showing why an equity release plan would not be more suitable for clients.  

This would either be by them also having the equity release qualification, or a referral partner in the equity release world who could provide comparative options.

“I also often read in financial commentaries that we equity release advisers ‘earn a commission of 3.5 per cent of the loan amount’.  

As a single adviser in a small business I can tell you that commissions paid to me are nowhere near that amount, and only one provider offers more than 2.5 per cent. The larger brokers may well be receiving far more based on volumes of business, but this in itself can easily lead to large scale product bias, and in my view should be looked at. 

“I await the outcome with interest.” 


No evidence of bad advice 

This prompted a response from A K Narey, who said: “I would question whether an FCA review is really required. Is it the usual regulator’s response of using a massive sledgehammer to crack a small and fairly thin-shelled nut? 

Is there really any evidence that lifetime mortgage borrowers are not receiving good advice from brokers or evidence of detriment to clients?

I do agree that there is a problem to be addressed with very high early repayment charges and a need for all mortgage advisers to have a broad knowledge about lifetime mortgages and retirement interestonly mortgages to be able to prove holistic advice to all clients, but that is a matter of education rather than regulation. 

Wilson replied again, adding: “If the equity release industry really is providing sound advice to clients, as indeed I passionately believe it is, then an FCA review will only be able to verify this – and thus provide further reinforcement of the message that it is a safe, open, honest and transparent advice process that does not lead to customer detriment. 

This can only help the promotion of the market in a positive way. 


Increase DIP conversion

In other news, Richard Manning suggested there may be ways to turn more decisions in principles (DIPs) into actual applications as he responded to the story: Fewer than half of mortgage DIPs issued complete – IMLA .

Manning said: “I do wonder how much these figures are impacted by every estate agent asking for a DIP before they will accept an offer on a property?  

If there was a more effective way of providing mortgage eligibility that agents and vendors would agree upon, I’m sure the conversion percentage would be significantly higher.


Troublesome new-builds 

Another story which invoked a reaction was the article: Mortgage lenders unite over ‘unfair and onerous’ new-build estate fees – exclusive.

Matthew Jones said: “I have just withdrawn an offer on a property for this very reason. However, this has been happening for a few years now and some conveyancers are not highlighting this issue to the buyer and/or lender, due to inexperience within some firms.  

“I suspect many lenders have got these properties on mortgage already without knowing. Wait until the first solicitor claims on his professional indemnity cover and then the insurers will drive the change as they are the ones currently exposed.” 



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