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Direct deals are driving out advice

By shutting out intermediaries, lenders are also bringing about a situation whereby, if advice is needed, consumers will not be able to obtain it

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


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. I agree with Nic Cicutti
    Which is a bit of a shock as I rarely agree with his comments. I wrote to lesley Titcombe on this very issue the moment the dual pricing started. Not becuase I have a problem with a legitimate business decision over pricing as it appears, Nic, lesley Titcombe and I agree, but becuase of the failure to enforce teh clients RIGHT to obtain advice and discuss that advice with their agent. Mortgages is not my favourite thing. I’m qualified to advise (in fact I’m qualified to advise on equity release too, but spend more time telling people why they don’t NEED equity release yet, than arrnaging it!) I digress….. The point is if the client appoints someone as their attorney, the lender has a legal resposiblity to treat them as if they were the client. Advisers are acting as agent of the client (I know agency law is a little different) and I pointed out to lesley Titcombe (FSA), ultimately mortgage advsier may be forced to get clients to complete powers of attorney (Limietd to provision of information only) simply in order to be able to advise their clients if the FSA did nothing about suggesting a solution. The otehr option of course is for teh adviser to attend the meeting with the lenders “Non adviser” as Nic correctly identified. I only tended to do about 1 mortgage a month before the credit crunch and hence the effect of having NO mortgage business to arrange for clients has actually been quite pleasent (as I’m sure Nic will know, moving home is stressful and the job of an adviser is to help reduce the stress and I don’t liek stress). Now I find myself in teh funny situation of actually booking a meeting for next week with a family member where we WILL be going in to see their “NON ADVISER” as I simply can’t obtain the information I need in order to advise them )for free) whetehr they should take the deal the NON ADVISER is not reccomending (but pushing) they take! I’ll let you know whether I’m shown the door when I arrive as we are one of the only firms nationally (I think) who record ALL client meetings as MP3 sound files to avoid misunderstandings and it will be interesting to see what the “NON adviser” reaction is to that as I would have to and always do point it out to clients and anyone else I deal with (including the FSAs Amanda Bowe)!

  2. Non-advised trouble in non-paradise
    My main issues are:
    1. The use of direct deals to avoid expert external comparison because the public are being bribed to avoid brokers and IFAs.

    2. The refusal to allow the public to apply for these deals through their chosen adviser(s)
    3. The out-and-out negligence of the FSA in allowing lenders to sell these products on an execution-only basis. This was never an option under the laws set out to regulate mortgages and must therefore be non-compliant and, in my view, dangerous to the consumer. I have no interest in whether it breaches the principles of TCF (although many lender practices clearly do), but I do object when an organisation sees itself as being above the law.

  3. Advisers need a stronger voice. Join
    Is it even legal to allow lenders to transact ‘direct deals’ on an apparently ‘execution only’ basis? Our belief is that this coul;d well be the next industry scandal.

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