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FSA warns of ‘worrying cracks’ around mortgage advice

The FSA has issued a warning to mortgage advisers of the ‘worrying cracks’ appearing around quality of advice, affordability and interest-only mortgages.
Speaking today at the Mortgage Business Expo in London, FSA retail markets managing director Clive Briault said the pressure on the processes for giving mortgage advice is increasing- due to a changing economic climate- and many aspects of the market are not up to scratch.
Briault said the FSA’s work looking at the quality of mortgage advice was ‘worrying’, highlighting processes relating to affordability, lending in retirement, interest only-mortgages and training and competence.
He said the FSA will announce the results of this work at the beginning of next year.
Briault focused on interest-only mortgages stating that in more than three quarters of cases- accounting for 19 per cent of all mortgages- it was not clear from thematic work that a repayment vehicle was in place.
Branding these results a ‘high proportion’, Briault said the FSA was investigating through interviews with 750 interest-only consumers whether advised and non-advised clients understand the risks of the product.
The work on interest-only mortgages will be published before the end of the year.
On affordability, he said the FSA was particularly concerned about what the quality of advice processes work shows about firms’ approach to affordability in mortgage firms.
He said it is becoming clear affordability is not being adequately discussed and assessed by an unacceptable number of firms, with in some cases the issue not being discussed at all.
He said ‘both the adviser and the lender have responsibilities to ensure the mortgage is affordable; neither party can delegate responsibility to the other party’.
Briault said: “Although interest rates remain relatively low compared to previous decades, they are now at their highest level for five years. A significant number of consumers could experience financial problems because of their high level of borrowing.
So the pressure is starting to increase on the processes for giving mortgage advice, and this is already revealing some worrying cracks. My message today is that the regulatory regime is in place to cope with this pressure and to protect consumers, but this requires all mortgage advisers to ensure that they are delivering the right information and a good quality of advice to consumers.”

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