Brokers say the FSA’s decision to soften the rules around its ban on non-advised mortgage sales will leave borrowers exposed to unsuitable deals.
The FSA’s mortgage market review policy statement, published last week, sets out slightly watered down rules around advice following strong lobbying from lenders.
The December consultation document proposed scrapping the non-advised sales process completely in order to protect borrowers from entering into long-term agreements they have not fully understood.
The final rules say sales will only have to be advised if the lender has “steered” a customer towards a product or set of products, or where the customer wants a further advance.
As long as the consumer does not want to borrow more, contract variations like changing the payment method, rate switches and retention deals or porting the mortgage can be done on an execution-only basis. Forebearance will also be exempt from the non-advised ban.
Association of Mortgage Intermediaries director Robert Sinclair says the rules leave consumers far too exposed.
He says: “I genuinely think this will be bad for consumers and the FSA has not gone far enough. I remain to be convinced that this is enough to protect consumers. I think allowing a consumer to just tick a box without fully understanding the consequences is a weakness in the proposals.
“Lenders will not have to do an awful lot when a borrower comes to the end of a loan, they just have to make them aware of the products available and then the customer picks. I think that is a bit weak.”
Coreco head of communications Andrew Montlake agrees the new rules could lead to consumer detriment.
He says: “There could be issues when existing customers go back to lenders to make changes to their mortgage. There is room for confusion to come out of that and I would like to have seen that stay as an advised process.
“While the MMR is good for brokers on the whole, it is a shame the FSA has missed that last little bit as some customers may end up choosing a mortgage that is not right for them.”
Intermediary Mortgage Lenders Association executive director Peter Williams says customers will benefit from the measures.
He says: “As intermediary lenders, we recognise the importance of advice and in the new regime most borrowers will be required to take advice. This will no doubt improve outcomes for the majority of consumers.”
The rules will spark a complete overhaul for two recent additions to the lender market.
Both lenders offer their products online or over the phone rather than through intermediaries. The Post Office introduced “mortgage specialists” into five branches to offer information but not regulated advice.
Neither firm is prepared to specify how they intend to meet the new regulatory requirements.
A Tesco spokesman says: “As a responsible lender we will comply with future regulatory requirements and are currently examining the detail of the new regulations.”
Post Office head of mortgages John Willcock says: “Earlier this year, we introduced mortgage specialists into a number of branches and will continue to roll out this service to other branches across the UK. We are currently reviewing the contents of the MMR and will make any appropriate changes to our service to ensure we conform with those.
“It is too early to say what our approach will be but once we have reviewed the MMR, we will be in a better position to make that decision.”