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Cat doesn&#39t get the cream

Over the last decade or so, the UK mortgage market has evolved to become the most sophisticated in the world. This is largely due to fierce competition among lenders, with some offering reasonably transparent products while others offer products which may have attractive headline rates but often have nasty stings buried in the small print.

This is a very different scenario to the 1970s and earlier when the Building Societies Association operated a cartel and borrowers had to go cap in hand to the local building society. If they were lucky enough to be given a mortgage they did not have to think about which deal to choose – it would be on the SVR and one lender&#39s SVR would normally be the same as all the others.

It is no longer enough for an adviser just to know the difference between a fixed anda capped rate, a discounted and a tracker rate (or possibly both). Reputable intermediaries need to ensure their advisers are professionally trained and able to take proper account of all their clients&#39 objectives, risk profile, tax position, etc.

Only by taking the time to complete a proper fact-find on all the relevant factors about the client&#39s circumstances and taking the trouble to find out what is important to the client, can an adviser hope to offer sound advice on both the most suitable type of interest rate and repayment method.

These recommendations then need to be promptly confirmed in a reasons why letter which should not only reiterate all the details of the mortgage but also why it was recommended.

Mortgage advisers have received a bad press and in some cases, quite rightly so. There are many reputable advisers but the absence of regulation has meant our industry has been tarnished by the poor practices of a small number.

It has largely been left to the industry to clean itself up to allay consumer fears. Ensuring that advisers receive the best and continuous training programmes will go a long way to improving standards.

What is clear, however, is that the Government has missed its chance to help the mortgage industry in its quest to improve standards.

The mortgage code

The introduction of the mortgage code in 1998 was a big step in the right direction. For the first time, consumers felt they had a degree of protection as formal procedures were put in place to ensure a potential borrower would know:

How their mortgage should be arranged.

What information they should receive before they commit themselves.

How their mortgage should be dealt with once it is in place.

Although the code is still voluntary, the fact that nearly all lenders are registered with the Mortgage Code Compliance Board and will not accept business from a broker who is not registered is testament to how committed the industry is to raising standards.

Cemap/Maq

Clearly, if standards are to be raised then training advisers to deal with an increasingly crowded marketplace is of paramount importance.

The MCCB recognised this and set to work on developing dedicated professional qualifications resulting in the Certificate in Mortgage Advice and Practice (Cemap) and the Chartered Insurance Institute&#39s Mortgage Advice Qualification (Maq).

From an adviser&#39s perspective, having these qualifications can only help with gaining a client&#39s trust as they can clearly demonstrate a level of competence and expertise to supplement their experience.

While the voluntary code has gone a long way to restoring some faith in the mortgage industry, statutory regulation seemed the only logical next step if we were truly to redeem the industry&#39s chequered past.

Cat standards

In January, the Treasury advised that the FSA would regulate mortgage lending activities and provide benchmark Cat standards for mortgage products. This was followed bythe finalised Cat standardsfor mortgages in April.

These moves came as a huge disappointment to the industry and consumers alike. The Government had missed a great opportunity finally to bring some much needed quality control to advice.

The introduction of Cat standards could have provided access to a straightforward mortgage product for consumers who would not ordinarily have sought independent advice.

Instead, the criteria for Cat mortgages mean these products are likely to remain inferior as lenders will not be able to afford to offer competitive rates, never mind the fact that brokers cannot charge a fee for advising customers on Cat-standard products. The shortcomings of the Cat are amply demonstrated by the low number of lenders which have introduced mortgages which meet all the Cat standards.

Because the proposals for statutory regulation and Cat mortgages are so flawed, independent advice remains more important than ever for borrowers if they are to get the best deals.

The decision not to regulate advice satisfies no one. Consumers have not received the protection they clearly want and the industry does not have the policing it wants to prove it operates the best practices.

Since well over half of mortgage lending is carried out through advisers, these are important issues. Once again, it is left to the industry to try to restore consumer confidence.

Consumer demands – helped by prodding from some brokers and the media – for better mortgage products and a higher standard of mortgage advice have been listened to and acted upon.

The need to get it right first time has never been more crucial. Advisers ensuring they are qualified and competent to sell mortgages is one of the best places to start. Simply holding all the exams is not enough, competence takes a great deal of time, often a great deal of financial investment and should never end.

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