The least worst option has been abolished in final rules for mortgage regulation, meaning that lenders and intermediaries must send potential borrowers to an IFA if a product in their own range does not exactly meet their needs.
Tied brokers or lenders will be prevented from recommending a product unless it is entirely suitable and in the FSA's opinion, the best course of action will be to send borrowers to an IFA.
In the past, if a consumer's needs were not exactly matched by a product, a tied broker or lender could recommend the next best thing or the least worst option.
For example, a firm dealing solely in the sub-prime market will not be able to recommend a sub-prime product if app-roached for advice by a customer with an unblemished credit record.
The FSA says, in its opinion, the most appropriate course in such cases would be for the firm to tell the customer to seek advice.
This move has been welcomed by the Association of Mortgage Intermediaries which says it will present many more options to intermediaries. Director Chris Cummings says the burden of the new rule will be felt by lenders as it is an intermediary's job to help find clients the best mortgage.
He says lenders will have to tell a customer that they cannot meet their needs and they should seek advice if there is not a suitable product in their range, even if the lender is making a non-advised sale.
Cummings says: “This presents many more options to intermediaries as, unless a product meets a consumer's needs exactly, they must be sent to a financial adviser and cannot just be offered the closest match.”