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Europe mulling compulsory mortgage advice

The European Commission is considering whether to make advice compulsory for all mortgage sales or for certain types of mortgage customers.

The EC is formulating proposals for a mortgage credit directive which will look to ensure responsible lending and borrowing across Europe, with proposals due to be published early this year.

Association of Mortgage Intermediaries director Robert Sinclair says: “The discussions on the European mortgage directive on responsible lending and borrowing are continuing, with debate as wide ranging as whether or not all mortgages should be advised or whether certain types of mortgage customers should always receive advice.”

Sinclair says consumers likely to be considered as needing advice by the EC may include first-time buyers, those in arrears and interest-only borrowers.

In a speech in November, FSA director of conduct policy Sheila Nicoll said around 30 per cent of mortgages are currently non-advised. She said the FSA would retain the non-advised sales route as part of the mortgage market review but raised concerns about customers not realising the distinction between advised and non-advised sales.

First Action Finance head of communications Jonathan Cornell says: “I think it would be a great move. If you look at the UK mortgage market, there are an awful lot of mortgages sold on a non-advised basis. Mortgages are a complex product and if people get it wrong, the consequences are huge.”

In last week’s product intervention paper, the FSA suggested it may ban non-advised sales for complex products or where consumer detriment risk is high. The EC is consulting on whether execution-only should be banned or tightened up for investment advice under Mifid.

A Council of Mortgage Lenders spokeswoman says: “In principle, we would prefer to see a more permissive regime rather than a restrictive one.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Brilliant,!!!!

    At a time when the regulator is intoducing RDR & also considering dragging the Mortgage market into the same level of guff we get this announcment.

    Who will be left to provide the advice????

    Out of step regulator???

  2. I agree with Jonathan Cornell all mortgages should be advised sales. The purchase of a mortgage on an execution only basis can lead to a costly mistake being made and is best avoided.

  3. It’s the muddying of the waters by banks having in branch “advisers” that don’t give advice.

    Sheila Nichol says the very same above. There is nothing wrong with non-advice. The problem is that people are not fully aware of whether they are receiving advice or not. This proposed approach would be, not just a sledgehammer, but a hadron collider to crack a nut.

    Why should someone who is confident in their own financial ability be forced to receive AND PAY FOR advice?

    I have to disagree with Johnathon Cornell. Some mortgages can be complex, but in general a mortgage is fairly straightforward for the majority of people. If people get it wrong, invariably the consequences are NOT huge.

  4. Recognising that I have a vested interest, there is an argument that no financial product should be available other than through an independent intermediary. Mis-buying is more pernicious than mis-selling, since the purchaser has no redress. A non-taxpayer, for example, might be better to purchase a pension than an isa, or someone with a protection need might be advised to consider addressing that before going into savings.

    As far as mortgages are concerned, advisers have a clear role in reducing unsuccessful mortgage applications (with the resultant damage to creditworthiness), as well as being able to understand and explain the shortfalls inherent in any product. The freedom to explore the market is naturally beneficial. The problem, of course, is to enable such advice on a large scale without financial detriment to the client.

  5. Back in the 70s I had one choice of mortgage with one lender who had a friendly branch manager.

    I didn’t want advice, I just wanted the keys to the door.

    Under the MMR I wouldn’t have got that mortgage, I have never ever missed a mortgage payment despite not fitting the credit scoring systems the lenders use nowadays.

    Today’s market is quite different, each lender has a dazzling array of mortgages and NONE of the are ‘advised sales’ which means no combacks or compo.

    I’m with David Carter on this but I would go one further, the prospective mortgagee needs to be counselled on what is a committment he or she may not be capable of undertaking for the long term but is blinded by the prospect of vast wealth in future.

  6. Dermot Brannigan 3rd February 2011 at 1:08 pm

    I read this first thing this morning, and am still struggling for a reason as to why it would be a good idea.
    What is wrong with being responsible for the decisions you make?
    I reckon the real reason is along the lines of – if you buy the product yourself, there’s no comeback, but if you buy it through someone else then you can sting them for any compensation.

    I suggest it has been thought about in the guise of ‘consumer protection’, but if the liability is now switched all onto the adviser, then how is the consumer protected if the costs of purchase have gone up, or that too many advisers are going out of business because they can’t afford the compensation payouts?

    So if it applies to FTB’s, what happens if just one of the couple is an FTB?

    I would only ever think this was worth bringing in if you could be sure of the quality of mortgage advice, and that’s still not the case today.

    The only section of society it should be brought in for is the over 60’s. Independent legal advice is compulsory for most of the lending options for that age bracket, and so should independent financial advice.

  7. All mortgage sales must be sold on an advised basis.We as an industry must press the FSA and our Mps to stop the Non Advised sales of mortgages by Non Qualified sales staff in banks ans Building societies
    Mike Fitzgerald The EMBA Group ltd

  8. Yes, but you can’t save people from themselves.

    And if I want to raise a mortgage without taking advice, that’s my prerogative and it’s a breach of my human rights to tell me I can’t have it, provided someone is prepared to lend to me.

  9. Avenue & Co Private Finance 4th February 2011 at 8:26 am

    Mortgages are a simple product, you dont need to be a rocket scientist to find a suitable one, however most consumers are not aware of the type of products and the options. Recently I placed a large offset deal for a client with £275k in savings, he didnt know how they worked and from wanting a 2 yr fix traditional, he went for a 5 yr offset after understanding the product. Thats the difference a good broker can make, good advice and a thorough independent advisory service cost him only £350 fee, and hundreds of thousands in interest costs.

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