This is an extract from a consumers guide to regulation that we are working on. Just two thoughts for you to dwell on. First, do any of your customers know what to expect from you in the future? Second, have you actually changed your sales process to genuinely comply?
October 31 will bring with it the single biggest change the mortgage industry has ever known. The road to statutory mortgage regulation has been a long one. Not satisfied with the industry's attempts to self-regulate itself through the development of the mortgage code, the Government decided in January 2000 that mortgages should be included within the remit of the Financial Services and Markets Act 2000 and would be regulated by the FSA. After nearly five years of debate, consultation and industry preparation M-Day has almost arrived.
A Council of Mortgage Lenders survey among its members values the overall cost of regulation at £99 for every loan arranged. This is not an insignificant sum of money and is a cost that is likely to be picked up by the customer so what are customers getting for their money and will the introduction of mortgage regulation – and the rules that firms have to follow – slow down the mortgage service for the customer? Will it create an environment where only the more professional and technologically advanced firms are able to provide an efficient, high quality service?
Buying a mortgage today and buying a mortgage after M-Day could be very different. With the large number of self-certification mortgages sold in the market today, will the mortgage adviser fully comply with the requirement to make sure the loan is affordable? Will the customer understand what they will get from an “independent adv-iser” and will they really get the choice they expect from a mortgage broker operating from the “whole of market”? The new disclosure regime should make products and services more transparent but only if customers take notice of the information that is available.
Despite the introduction of mortgage regulation, buy-to-let and second charge mortgages remain outside the FSA remit. Big parts of the mortgage industry will strongly argue that these products should be regulated but what about the protection of customers? It is likely that many broker firms will look to find new areas of non-regulated activities to ply their trade and avoid the attentions of the FSA. It has happened before and begs the question as to whether a customer should trust an adv-iser or a non-regulated loan where that adviser has deliberately chosen to stand outside the scope of regulation.
The mortgage adviser needs to satisfy three main criteria in giving regulated advice. First of all, the adviser must ensure that the mortgage product that he or she recommends is affordable to the customer. This affordability assessment needs to take into account future changes to income and expenditure as well as changes to interest rates. At a time when high property prices and rising interest rates are stretching affordability, this is an area that must be given due consideration.
Second, the adviser must ensure that the mortgage is appropriate to the needs and circumstances of the customer. The customer should therefore expect to be asked a lot of questions to ensure that their adviser is making sure that they truly understand what they require. Third, the adviser must advise the most suitable product which should be based on the preferences that the customer has provided. Is anybody really ready for this formulaic approach?