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Boulger on mortgages

Four months into statutory mortgage regulation and it is just as easy to find non-compliant financial promotions as compliant ones.

Some rules are not as clear as they could be and there is scope for different interpretations but some firms are blatantly abusing the rules.

On researching the web, one example of a rule being widely flou ted is in the use of the term “independent”. Type into Google “independent mortgage broker” and see how many links you get to firms which claim to be independent but also say they do not charge fees. Another frequent abuse is using a synonym for independent. The FSA has said that firms which are not independent must not use words perceived to have the same meaning. The obvious ones that come to mind are “impartial” and “unbiased”. Again, it is easy to find financial promotions from firms which are not independent but which claim they are impartial or unbiased. Several brokers are even still claiming to be regulated by the MCCB.

Product advertisements from lenders demonstrate an interesting variety of views on how Mcob3 should be interpreted and the degree of confusion suggests that some clarification from the FSA would be welcome. Some lenders make no reference to the fact that a product has an arrangement fee, many say there is one but do not say how much and only a few specify the amount.

One of the minority to state the amount clearly is Halifax and I note that its current tracker ads show the amount of the arrangement fee at the top of the bullet points because it wants to make a point of promoting a half-price offer of a 249 arrangement fee compared with its recently increased normal fee of 499. Details of the arrangement fee were previously at the bottom of the bullet points but at least the amount was clearly stated.

Most lenders fail to state the amount of their early repayment charge although the majority state there is such a charge and how long it applies for, which is the most important point. However, if the ERC is above average I think it is asking for trouble not to state the amount and if it is fairly typical or below average, there is no commercial reason not to disclose it. Either way it would seem prudent to state the amount.

I have not noticed a reference to exit fees on any lender ad but these have increased recently even more in percentage terms than arrangement fees and in many cases are now over 200. I believe at this level they are material and reference to them should be made in promotions. We take exit fees into account when compiling best buy tables. Suitable wording might be “We currently charge an exit fee of xxx but we can amend this fee by any amount we choose at any time.”

A negative feature of some tracker and discount mortgages is a collar, or floor. Two of the top five lenders, Halifax and Nationwide, have collars, as do several other lenders. However, most ads do not adequately disclose details of this.

Halifax’s tracker ads make no reference whatsoever to the collar despite wisely disclosing full details of the very complicated way it works in its KFI (one of the reasons the KFI is so long). First Active has a collar on its five-year tracker and, while it refers to it in the ad, it plays down its significance by saying “The rate won’t go below 4% whatever happens to the Bank of England rate (and rates have only been that low twice in 50 years)”. Furthermore it is less prominent than the interest rate. As the FSA insists that the statement “past performance is no guide to the future” should be included on investment ads, I suspect it will take a dim view of the wording in brackets.

Ray Boulger is senior technical manager at Charcol

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