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Charged debate

When I wrote about mortgages a few weeks ago and asked for your views, I did not expect the email response that followed.

More than 20 emails have pinged their way into my inbox about a subject that, while personally irritating, I would never have guessed could be as important to many IFAs. It is probably a reflection of the importance of mortgage business to so many intermediaries.

To give you a flavour, I have selected some of the more representative emails for this column. Their authors will undoubtedly recognise themselves. Meanwhile, apologies to those I did not reply to.

My first respondent spoke for most readers when he said: “I heartily agree in criticising lenders who deliberately shrink rates, only to simultaneously raise fees to ridiculous levels, in order to appear in the best-buy tables. This practice was also criticised at the Council of Mortgage Lenders’ lunch in March.

“Recently, a luminary from one of the larger estate agencies was vociferously calling for the abolition of APRs and seemed to attract significant support. But isn’t it APRs that highlight these poor practices?”

My correspondent is equally scathing about mortgage brokers. “Mortgage brokers are salesmen. They do not give advice. They automatically believe that everyone who asks should have the mortgage they desire. For the main part, they have still to take on board the whole ethos of regulation.”

Another IFA wrote in to say: “The problem goes much further. It is become more and more difficult as an adviser to select an appropriate mortgage product because of the lack of transparency.

“Mortgage sourcing systems generally list products in order of initial rate and this can be very misleading. This is not just because of initial fees. The top of the tables are generally full of what I would call jam-today products.”

Unlike my earlier respondent, this one is less keen on APRs as a comparison tool. He says: “In my experience, very few clients leave their mortgage with the same lender for the whole term without changing product. This renders the whole concept of the APR completely irrelevant.”

His solution is to quote the total cost of the loan during the rate-control or tie-in period. This should include the repayments, initial and closing fees and take account of any cash benefits.

Another adviser adds a note of caution: “The only issue is that because most fees are fixed, a completely unsuitable deal for a £100,000 mortgage could be the most competitive deal available for a £500,000 loan.

“In addition to displaying best-buy tables, including all the costs spread over the term of the initial deal, maybe they should be categorised by different loan sizes, say £50,000, £100,000, £250,000 and £500,000?”

My personal view on this is that while it is a good idea in principle, it would be impractical as part of a newspaper or magazine’s best-buy charts as it would simply be a case of information overload. But then, my opinion, which has developed gradually over the years, is that mortgage tables are increasingly dangerous when published in newspapers for many of the reasons discussed here. They are a throwback to a time when they were the only source of information.

Today, if they continue to be published, they should have comprehensive health warnings attached or, better still, readers ought to be directed to tables published online, where this kind of information can be made available much more easily in a way that suits individual borrowers.

Finally, a couple of IFAs were puzzled by the way in which my friend received “advice” on his mortgage. To remind you, he was given two options and asked to select one of the mortgages.

One email asks: “Isn’t it an IFA’s job to analyse these products and make a recommendation after taking all issues into account, including the way in which interest is calculated, the redemption penalties, etc?

“Ultimately, your mate should have received a recommendation and an explanation from his IFA rather than being given a choice of products and told to pick his own.”

Another IFA says: “The broker concerned would have to have been really stupid to try and rip off a client you had introduced. The fact remains that many clients will swallow the high cost of the fee, especially when “painlessly” added to the loan, and go for the low monthly repayment figure. I would guess that in this case the broker will have offered the two options with this in mind.”

To be honest, I do not fully understand the basis on which the advice was being given, which is why I am loath to criticise the adviser concerned, other than in the most general terms.

However, what is clear from all the emails is that there is a massive issue lurking here in relation to how information is presented to clients in a way that makes total costs clear to them. It cannot be beyond the wit of the IFA and mortgage broking community to come up with a commonly agreed method of analysing products in such a way as to ensure that their true price is divulged to consumers.

I would have thought that this is a job for the two main trade bodies representing mortgage advisers, including the Chartered Insurance Institute’s Society of Mortgage Professionals, as well as Aifa’s Association of Mortgage Intermediaries. How about it chaps?

nic@inspiredmoney.co.uk

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