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Capital adequacy &#39will be a bigger issue than PI&#39 for mortgage advisers

Capital adequacy is likely to be the biggest single issue facing mortgage firms when regulation kicks in next October, says Mark Mountney, vice-chairman of the newly formed Association of Mortgage Intermediaries.

Under the proposed regulations, mortgage firms must have professional indemnity insurance and meet stringent capital-adequacy requirements.

The cost of PI cover has long been viewed as one of the biggest obstacles for newly regulated firms to overcome.

But Mountney believes that it will not overly affect mortgage firms as the Mortgage Code Compliance Board already insists that they have PI cover.

The capital-adequacy requirements insist that firms have liquid assets of either 5 per cent of their net worth or £5,000, whichever is greater.

Mountney says this will amount to £150,000 for his firm, Premier Mortgage Management, which he describes as a significant sum.

Mountney says: “The need for capital adequacy will place another burden on resources that are already overstretched. I am sure that it will prove to be a sleeping giant for a lot of firms.”

Intermediary Mortgage Lenders&#39 Association chairman John Heron says: “There are so many issues that will affect lenders when regulation kicks in that it is difficult to pick out one that is the most troubling.

“However, I believe that the biggest issue for the intermediary sector will be the appointing of representatives, something that will affect most mortgage lenders.”

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