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Finding mortgage advice
by Sarah Modlock
Because most of do not have the time, knowledge or inclination to be mortgage experts, we rely on professionals to help us make our biggest purchase. And it's the job of City watchdog the Financial Services Authority to make sure that the experts are up to scratch. This involves setting the rules and making sure advisers and firms stick to them.
Regulation of the UK mortgage market passed to the FSA last year. Lenders and brokers have to be authorised by the FSA and comply with a new set of regulations designed to protect consumers. Alongside the official visits carried out by FSA staff, there is also a programme of mystery shopping designed to see what really goes on when homebuyers seek mortgage advice. They arrange for lenders to be telephoned or visited by investigators posing as customers to ensure that rules are being met.
In April and May this year the FSA commissioned a mystery shopping exercise of 82 visits or calls to 62 mortgage lenders and brokers as part of its priority work with the mortgage industry. The work was undertaken to establish whether firms were providing two key documents required by regulation to inform customers about the type of service a firm provides and about the cost, features and risks of a particular mortgage proposal. These are the Initial Disclosure Document and the Key Facts Illustration. These documents are at the heart of the FSA's drive to improve the quality and clarity of information for consumers and prevent mis-selling. They must be provided at different points in the sales process.
Mystery shopping
Worryingly, after 82 visits to 62 mortgage lenders and brokers, more than half failed to meet the standards required. Findings showed that firms were non-compliant in 45 (55%) of the 82 mystery shops. In 23 assessments, the firm failed to provide one of the documents, in 12 assessments the firm failed to provide either document and in 10 assessments the documents were provided but not at the correct time.
'These are disappointing findings,' says the FSA's Clive Briault. 'The key facts documents are designed to give customers clear, straightforward information on the services and products they are being offered to enable them to make informed decisions and to shop around. It is extremely important for all firms to comply with our regulations. We have been working with firms on the quality of these documents and will continue to monitor closely firms' distribution of them through further supervision work,' he explains.
Mortgage firms have suggested that regulation has resulted in longer interviews with customers, and that the need to provide disclosure documents has been one factor in this. However, the mystery shopping indicated that there was little difference in the length of the interview process between those firms who complied with the requirements and provided the documents and those who did not. The difficulty for borrowers is that we have to trust what the adviser tells us. And if they fail to give us an important document, we may be unaware of it.
It is the second time this year that a mystery shopping exercise has revealed widespread failings. In May the FSA found that 70% of advisers were not following proper procedures for customers wanting advice on mortgage equity release products. Mr Briault said the FSA would continue to monitor the industry's adherence to the regulations and did not rule out the possibility of action if companies did not comply. "If we find that some firms continue in these failings we will take this very seriously and the appropriate action will be taken, including enforcement action if necessary."
The way forward
If you are wondering where to start, the first thing to check is that your adviser is authorised by the FSA. Log on to www.fas.gov.uk to check.
The internet provides an opportunity to do some homework before you meet an adviser face to face. Sites such as Yahoo! Finance have useful information and calculators and confident borrowers can buy online. You can also get independent mortgage advice from Bradford & Bingley though Yahoo!.
If you are looking for an independent financial adviser then trade body IFA Promotion has launched a free ‘Find a Mortgage IFA' search facility at www.impartial.co.uk. The main aim of this service is to ensure that people can easily find truly independent financial advice when seeking to make one of their biggest financial decisions, especially as IFAP's research shows that 78% of borrowers take out one or more insurance or investment products when they take out a mortgage. IFAP has been working with its members to collate details of ‘gold standard' IFAs who are independent for mortgages and all other financial products. The new online search facility lists details of over 5,000 mortgage IFAs. IFAP has carefully checked and verified their authorisation with the FSA.
The new site allows consumers to select the most appropriate mortgage IFA local to them, including those who specialise in everything from general mortgage advice for existing homeowners or first time buyers, through to buy-to-let, loans for self employed, 100% mortgages, refused credit customers, self-build and equity release. You can also search using additional selection criteria including postcode, gender plus IFA and mortgage specific qualifications.
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