The regulator says in this situation broker fees would not need to be included in the APR or the key facts illustration produced by lenders.
Speaking at the Manchester Mortgage Expo today, FSA head of mortgage and credit unions Jonathan Fischel said the KFI is used to illustrate the cost customers need to pay in order to obtain the credit on offer. It says the advice fee is not part of that.
Fischel said: “It so happens that the customer has paid that fee as part of their route to the product, but it is not a necessary condition for the credit.
“Clearly, the customer is going to be receiving two KFIs in these circumstances, one from the adviser and one from the lender. As well as showing differences in fees, there may also be a difference in section 2, as the lender may be selling the product on a non-advised basis.
“These differences are in line with the rules, and will accurately reflect the different parts being played by the two firms in the transaction. However, the potential exists for some confusion on the customer’s part, and the adviser may be able to manage this by explaining the different roles the firms are playing and the resulting differences in the disclosures they will provide.”
Fischel added that when advisers recognise that there are more competitive products available direct from lenders they should inform their client of the alternatives available.
He said: “…but we don’t expect the intermediary to point to a specific product or provider, and we would have no difficulty in the intermediary drawing attention to different levels of service.
“We do not think this an overly onerous disclosure and indeed believe that intermediaries would want to make such a disclosure in a positive and pre-emptive way. They run the risk of complaints and damage to their reputation if the customer subsequently discovers a better deal on the high street.”
Fischel also warned that consumers on self-cert mortgages may find they are unable to remortgage at the end of their current rate period because lenders will no longer accept their application without proof of income.
He said: “In these cases, consumers will have little choice other than to remain with their existing lender potentially on a higher interest rate. This could lead to a rise in the number of complaints against intermediaries by consumers who feel the risks associated with their mortgage product were not adequately explained to them at the time of the original sale.”