The FSA ended 2011 on a positive note with its mortgage market review proposals striking the right balance of guarding against irresponsible lending without unduly affecting current and future borrowers.
In announcing its stand-out policy of banning most non-advised sales the regulator gave a rare nod to the value of advice and rightly highlighted consumer confusion around whether or not advice, and the protections that come with it, is being received when a mortgage is taken out.
Unfortunately a few of the big lenders are less than happy with the FSA’s plans and have been spending the festive period plotting a lobbying campaign to attempt to change the regulator’s mind. The FSA must stand firm.
For too long many lenders have blurred the lines between advice and information when dealing with customers, allowing them to make their profits without any of the pesky responsibility and consumer protection that comes with an advised sale.
Around 30 per cent of mortgage sales are non-advised but many consumers do not understand the distinction in the service they are receiving. There is no direct link between risk and advice provision, with similars level of low and high risk products sold without advice, according to an FSA table published alongside the MMR (see table below).
The FSA’s cost-benefit analysis suggests increasing professionalism amongst bank staff will lead to one off costs of between £17m to £28m. Some lenders will argue these costs will be passed on to consumers with negligible benefits.
They have already pointed to FSA statistics, also published alongside the MMR (pages 162-163), which show little difference in the default rates between advised and non-advised sales as evidence to retain the status-quo. However, impairment issues are usually triggered by a change in circumstances, such as losing your job, and should not be seen as the over-riding benchmark of service quality.
Lenders are unhappy their staff will have to gain appropriate qualifications and abide by regulatory rules such as ensuring the suitability of the product. They will have to take on the extra business risk of an advised sale in terms of the consumer’s recourse to the Financial Ombudsman Service.
But all of this is what customers expects to receive when being helped to arrange often the biggest financial commitment of their lives.
Association of Mortgage Brokers director Rob Sinclair gives the example of where a lender writes to a customer at the end of a fixed rate or incentive period. In this situation a customer probably thinks that regulation is protecting them and ensuring the lender operates in their interests. These new rules will ensure that is the case as the communications will be linked to an advised sale.
Rather than adding another layer of unnecessary bureaucracy to lenders, these proposals will enshrine the protections and rights consumers think they are already getting.
The FSA must ignore the pleading of certain big lenders and stick to its guns over its non-advised sales ban. Consumers deserve the protection and service that comes from receiving advice from qualified and competent individuals.
Paul McMillan is editor of Money Marketing – follow on twitter: @mcmillan_paul