A month or so ago, like the mug that I am, I decided to buy another property. Despite vague hints in the last few months of a very minor recovery in prices, you still might think that sinking a large six-figure sum into a house is not a clever move right this minute.
Who knows, you could be right. Prices still look very jittery to me and could easily drop sharply again. But the fact is we liked the house and have managed to negotiate a 25 per cent cut on the price the vendors demanded, somewhat optimistically, in late 2007.
Most important, as far as I am concerned, we can afford the mortgage. It is a three-year fixed rate priced at 4.09 per cent, with total fees of just £99. This last was important to us as most borrowers simply fail to take into account the incredibly high application and/ or completion fees so many lenders charge nowadays.
What makes this mortgage different is the fact that on both the two previous occasions when we took out a mortgage, my partner and myself went to a mortgage broker and he sorted out our homeloans for us.
It made sense. The first time, the broker concerned found us a very cheap deal, did a lot of the spadework for us, charged us £250, which wasn’t bad considering, and made most of his money through the lender’s proc fee. The second time, we did a lot more of the graft and ended up sharing the proc fee, which was quite high.
This time round, however, I did my own research and ended up at the shores of First Direct, whose mortgage it was. I felt bad about not using an expert to source the loan but the reality of dual-pricing nowadays means that brokers simply cannot compete in many cases.
Indeed, if you go to a broker nowadays, you could end up paying vastly more for your mortgage. According to a story in Money Marketing, borrowers who opt for direct mortgages are now saving up to £5,000 more than those who choose an intermediary mortgage over two years.
Home Buyer Systems claims the “true cost” to customers of choosing an intermediary mortgage can be up to around £208 per month more expensive than a comparable direct-to-lender product over the first two years. Moreover, the choice of products available via intermediaries is very limited compared with direct-to-lender equivalents.
This is not a recent problem, of course. When it began to manifest itself last year, IFAs were quick to complain to the FSA, claiming that dual-pricing was in breach of the regulator’s treating customers fairly guidelines. Unsurprisingly, the FSA rejected this approach – if a lender wants to offer a deal more cheaply direct to its own borrowers or if it does not want to market a product through intermediaries, that is a commercial business decision that it is fully entitled to make.
My concern, however, is not so much with dual-pricing but with the issue of mortgage advice more generally. What seems to be happening is that, by shutting out intermediaries, lenders are also bringing about a situation whereby, if advice is needed, consumers will not be able to obtain it. In our own case, the telephone salesperson was at pains to tell me that she was not “advising” me with regard to the mortgage we were applying for.
What also surprises me is that although many mortgage brokers would love to be able to recommend products that are not available to them, the requirement to provide the customers with a KFI prevents them from doing so because most sourcing systems do not have details of direct products.
The FSA said more than a year ago that it was in talks to resolve this issue with the Association of Mortgage Intermediaries, yet I have not heard anything since then.
Moreover, the way that KFIs are prepared is clearly problematic. In our case, the KFI gave us no indication as to the cost of the (non)-advice we were receiving from First Direct. The FSA’s position is that all the lender is doing with the KFI is illustrating the cost paid by a customer in order to obtain the credit on offer, with any “advice” being “part of their route to the product”.
Presumably, however, if a broker were to provide a KFI on a direct product, it would have to take its fees into account within the APR itself. As an intermediary, the broker would then be responsible for the accuracy of the overall KFI as well.
What seems to be happening is that while the RDR talks about factory-gate pricing for IFAs, it is studiously ignoring the mortgage market. Or rather, it is turning a Nelsonian blind eye to it, by making it difficult even for advisers prepared to recommend direct-only mortgages to earn any income from them.
Never mind commission bias, if this goes on, many advisers will be driven out of the market. Then, in five or 10 years time, when mortgage brokers are killed off, the FSA will wonder why it is that there has been a staggering rise in “non-advised” mortgage sales, where consumers ended up paying hundreds if not thousands of pounds more for their deals. Will you tell them or shall I?
Nic Cicutti can be contacted at firstname.lastname@example.org