Most non-advised mortgage sales are set to be banned where there is a “spoken or other interactive dialogue” between a customer and a firm.
Under new proposals published as part of the FSA’s mortgage market review final consultation, all advisers must consider if a mortgage product is suitable and affordable for the customer, rather than simply providing information. The FSA defines interactive dialogue as face-to-face, telephone, social media or online propositions that contain the facility for live chats.
However, after a borrower has received advice, they can reject it and agree a product on an execution-only basis. The ban will not affect high-net-worth borrowers who can continue to be exempt from advice.
Around 50 per cent of mortgage sales are currently non-advised, according to the FSA.
Equity release, right-to-buy and sale and rentback sales must also be sold on an advised basis. Sale and rentback transactions are not liable for the opt-out after receiving advice, as the regulator says these people tend to be in a vulnerable financial position.
The FSA says it will publish its feedback statement and final rules next summer but will not implement the rules before summer 2013.
In November 2010’s distribution and disclosure MMR consultation paper, the FSA backed away from moving to an all-advised market, proposing instead to strengthen the sales standards in non-advised sales by making sure advisers made certain efforts to check if a product was suitable for a borrower. However, the FSA has now returned to its original plans to ban non-advised sales.
Association of Mortgage Intermediaries director Rob Sinclair says: “I think the recognition that advice is the right way to go for such complex transactions is a positive step forward.”
Mortgage market review: the main points
- A ban on mortgage sales on a non-advised basis, except for high-net-worth clients. Customers can reject the advice given and buy a product on an execution-only basis.
- Affordability for interest-only loans must be assessed on a capital-repayment basis, unless the customer has a “clearly understood and believable” method of repaying the capital.
- Plans have been scrapped to introduce a buffer into affordability assessments for borrowers with an impaired credit history, which would provide an allowance for other debts.
- The initial disclosure document is to be scrapped and the trigger points for the key facts illustration have been changed, meaning a KFI only needs to be issued when a customer is given advice on a product.
- Self-certification and fast-track loans are to be banned.
- FSA has scrapped proposals to apply RDR labels “independent” and “restricted” to mortgage intermediary firms.
- Lenders will be allowed to waive mortgage rules to help so-called ’mortgage prisoners’ get a new mortgage in the new regulatory environment.