This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.

FSA must ignore lender pleas over non-advised ban

  • Print
  • Comments (22)

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

  • Print
  • Comments (22)

Daily Email Updates
If you enjoyed this article, sign up to receive the latest news and analysis from Money Marketing.

Money Marketing Awards 2015
Put your firm forward as the leading practitioner in your field. Adviser and Advertising categories are open to entries - Enter Now.

Readers' comments (22)

  • I agree - lenders care about profits and not about the customer.

    Unsuitable or offensive? Report this comment

  • For once, I agree with the Banks....

    If someone knows what they want - and the risks of 'buying' withiout advice (MAS can help here) is known to the person - I can't see any reason to stop someone arranging a mortgage on a non-advice basis.

    Adding advice adds cost - so why pay?

    I am hoping the end result though will be more people WILL want advice, after individuals start noticing they are making the wrong decisions (and can't blame anyone for their mistakes) and so the value of advice will be shown.

    Unsuitable or offensive? Report this comment

  • Are all consumers morons then?

    The FSA is hardly the font of knowledge and virtue in all matters financial, or is it?

    Is banning not simply manipulating markets?

    What a load of toot!

    Unsuitable or offensive? Report this comment

  • I think this is great news for consumers and advisers, as for too long we've seen the casualties of irresponsible lending. A lender has no interest in providing proper financial advice as his main aim is to get a commitment from the climb to take out as much borrowing as is affordable.

    If proper advice services had been in place post-1997 and it is unlikely that we would have seen the boom in lending particularly if advisers had been trained to show clients the long-term damage that high levels of debt can to to their long-term future.

    What is the point after all of individual declaring an income of £25,000 on their tax return but having a mortgage of £250,000 under a self cert mortgage application. Believe me this is the type of practice that has been going on between 1997 and 2007 with some banking organisations. We should never let lenders get into a powerful situation of dictating terms to the regulator it is only a recipe for disaster for both the economy and the industry.

    Unsuitable or offensive? Report this comment

  • You can see where the confusion stems from - a person walks into a bank and has a mortgage arranged by a person whos name tag says MORTGAGE ADVISER and then finds out that they didn't have mortgage advice; it is something that certainly needs resolving somehow.

    Unsuitable or offensive? Report this comment

  • Peter Herd - What a load of sanctimonious drivel!

    It is a perfectly reasonable to have an advice option, but to ban a non-advised process when someone knows what they want and a lender is happy to provide it - WHAT is all that about!

    If we need a dynamic business economy, why limit choices?

    I do not get the idea that people need to be saved from themselves if they are happy not to have advice

    Unsuitable or offensive? Report this comment

  • A lot of uninformed comment above but this is a crucial issue for those of us in the mortgage market. Non-advised sales lead to poor customer outcomes and are a rebrand of the much maligned "execution only". Congratulations Paul on highlighting such an important topic and you're right the FSA must stand firm.

    Unsuitable or offensive? Report this comment

  • I dont do mortgages (and am IFA, not a bank adviser) so have no axe to grind, but is seems absolutely absured that fully grown adults who have jobs, families etc are no longer going to have the choice of either doing it themselves of receiving advice. Do not ban non-advised mortgages - give client the choice and have a disclaimer signed by them waiving the advice route if they know what they want. This is the Nanny state going ballistic. If a client knows what they want and now has to go through an advice process (and pay for it coz the banks aint going to abosrb the costs themselves) they will end up with the same deal as they initially wanted but it will have cost them more. Hardly better consumer outcome Hector, is it? But is not really about better outcomes for consumers - its all about expanding the power base to give access additional revenue streams to producing more fines in years to come.

    Unsuitable or offensive? Report this comment

  • A lot of people shop around for mortages, popping in to a branch for some information from one of the mortgage advisers on the range of deals. They might not want to be caught with a 2 hour full finacial review. Brings back memeories of the Ancient Mariner, where a passer-by was grasped by the wrist and made to hang about for hours whilst being delivered of an interminable story.

    But the FSA seems to want to rule every part of every person's financial life. What a bunch of stalinists. 'Uncle JHoe' knows best...... yeah right.

    Unsuitable or offensive? Report this comment

  • I've worked for lenders for many years and now work for an AR firm. I do not agree with the proposals; it will add time and cost to every transaction which WILL be passed on. If lenders build a full advice solution via the phone etc and take the hit, surely the lure is to push more customers direct to help balance the books? Are the borrowers who are confused lender-direct, or via intermediary?
    Adults should be able to choose, and if desired, choose execution only. Advice is valuable for some, but not all. I can't remember a single lender complaint in the prime market where they were confused about whether they received advice. Surely a simple solution is to have a simple common template (read: new IDD) that states whether you give advice or not, which lenders you deal with (or don't/can't), and if you don't give advice, a clear statement that you can only answer questions factually and the final choice on products is the consumers. Signed, stored, simple.

    Unsuitable or offensive? Report this comment

View results 10 per page | 20 per page | 50 per page

Have your sayEdit my profile/screen name

You must sign in to make a comment

Fund Data

Editor's Pick


How do you plan to vote at the general election?

Job of the week

Latest jobs

View all jobs

Most recent comments

View more comments