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Boulger on Mortgages

Some lenders whose KFIs weren’t available online on M-Day have got their act together but many still don’t offer this facility and there are still no-go areas. Portability is a particular problem, with most lenders unable to produce an online KFI when a product is ported and some not able to produce one manually.

One of the biggest complaints is the number of pages, in many cases into double figures, over twice the length expected by the FSA. There are two main reasons. Some KFIs have more blank space than information with pages over 80 per cent blank. This results from an over-zealous attempt to meet the FSA’s “guidance” that wherever possible the whole of each section should be on the same page and appears to be the result of allowing enough space for a worst-case scenario of having to show many multiple products. Is it really that difficult to programme a computer to print each section of the KFI fully on one page, taking account of the different amounts of information that is needed for individual KFIsThe other principal reason for KFIs being too long is excessive verbiage, usually due to legal departments. However, the FSA have said that it is unacceptable for a KFI to be too long, just as it is unacceptable for it not to include all the prescribed information. A KFI with more than double the number of pages the FSA expected will fail to achieve the desired outcome of allowing borrowers to easily compare it with other KFIs. If lenders don’t voluntarily resolve this problem the FSA might prescribe which information shouldn’t be included and insist that if lenders want to include this they should do so with a supplementary information sheet.

One major lender has been told by the FSA that if they retained their option to change the terms of a lifetime base rate tracker if the margin between base rate and Libor increased too far they could not call the product a base rate tracker. This has some interesting implications. Several lenders have floors on their tracker or SVR-based discounts, in one case only 0.25 per cent below the initial tracker rate. This information is shown on the KFI but it is not reflected in the name of the product. It may be that the FSA will insist that, in the same way we have capped trackers, lenders should reflect the fact that a product has a floor in the name of the product, although “floored tracker” or “floored discount” might present some challenges to marketing departments.

Although, amazingly, the FSA has not prescribed that the KFI must state whether interest is calculated daily, monthly, quarterly or annually, some lenders have included this information in Section 4.

Most lenders lump procuration fees and inducements (which most lenders are referring to as “benefits”) together as one figure in Section 13. There will be many brokers like ourselves who receive no material inducements. However, most lenders are quoting a single figure on the KFI which they typically describe as cash and benefits. Inducements, or benefits, have a very different meaning to cash and I think it is misleading to lump the two together. It is even more misleading to state “cash and benefits” when the figure for benefit is nil. Portman is one of the few lenders who have adopted a sensible approach here and make no reference to “benefits” as they have no material benefits to disclose. If the FSA wants benefits to be transparent it is imperative they require lenders to disclose their value as a separate figure to cash paid to brokers by way, for example, of a procuration fee. Having said that, in some cases grossly misleading figures are being disclosed by some lenders for the benefits relating to valuation reciprocation. This should be done on a per intermediary basis, not a per network basis if it is to be clear, fair and not misleading.

Ray Boulger is senior technical manager at Charcol

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