Compliant financial promotions for mortgages will look very different after regulation. This will affect not only advertisements in the press but also other media such as TV, radio, the internet, leaflets, etc. However, ads in publications with a long shelf-life, such as directories, will not have to comply with the new regulations immediately. If the business is FSA-authorised, an appropriate person in the business must approve all the promotions. If the business is not authorised, such as an appointed rep, another authorised firm must approve the promotion.
The overriding principle is that all promotions must be “clear, fair and not misleading” and due regard must be given to the probable level of knowledge of the target audience. An ad that would meet this test if placed in the Financial Times might fail it if placed in the Daily Star.
One straightforward change is that the health warning will have to say: “Your home may be repossessed if you do not keep up repayments on your mortgage.” Certain commonly used terms will be banned, as prescribed words must be used to describe certain terms. For example, “Mig” will disappear and in its place we must all use the term “higher lending charge”. Redemption penalty will be replaced by “early repayment charge” and an equity-release mortgage can only be referred to as a “lifetime mortgage”. Small print will be banned and so typical examples will no longer be required. All material aspects of a mortgage must be included in the main body of the ad.
Promotions must be “balanced”, with negatives given at least equal prominence to positive features promoted but raises the question of what is a “feature.” For example, it is clearly a generic description of the type of mortgage if the main message is to promote, say, a “two-year tracker” or a “five-year fix” without mentioning a rate but is it also a “feature”?
Mortgage ads will look very different and I expect to see a lot less specific product advertising but more brand and product advertising that does not mention an interest rate.
All promotions of a regulated mortgage that include an interest rate must include at least as prominently details of all other rates which will subsequently apply to that mortgage, assuming no change in current rates. Apart from the tiny minority of mortgages with the same rate applying for the whole term, all mortgage ads will have to show at least three rates. A typical product with a fixed, tracker or discount rate for an initial period, followed by SVR, will need to show, in addition to the initial rate, the go-to rate and the APR, with the latter two rates being at least as prominent as the initial rate. If a lender has a loyalty rate that does not click in as soon as the initial rate ends, this will have to be shown as well, meaning four rates must be shown with equal prominence.
The vast majority of APRs are still grossly misleading as they usually assume a 25-year term, whereas the average life of a mortgage is now only four to five years. Despite this, it will continue to be a requirement to include the typical APR when advertising a specific mortgage. Thus it remains a legal requirement for authorised firms to mislead potential borrowers, which seriously conflicts with the FSA's requirement for financial promotions to be “not misleading.”
Ray Boulger is senior technical adviser at Charcol