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FSCS sets out four danger areas for mortgage advice

The Financial Services Compensation Scheme has highlighted four key areas of mortgage advice it anticipates will give rise to complaints from consumers in the future.

The areas are:
•Where a consumer has not been advised about the different types of mortgages and took one that was not suitable.
•If specific details of the mortgage are incorrect, for example, a longer term has been selected than the customer required.
•If a consumer was given advice to switch mortgages but was not given an adequate explanation of why this should be done.
•If a consumer was advised to take out a lifetime mortgage that was unsuitable for their circumstances at the time.
The scheme says all these circumstances will be taken into account if the consumer has suffered a loss as a result of this advice.
The FSCS will only pay compensation for financial loss and only if a firm cannot pay claims against it. It will cover claims arising from business conducted on or before October 31.
The compensation payable for mortgage claims is limited to £48,000, 100 per cent of the first £30,000 and 90 per cent of the next £20,000.

FSCS chairman Nigel Hamilton says: We are confident the extension of protection will benefit both consumers and industry, by helping to maintain confidence in the industry.”

But Association of Mortgage Intermediaries policy officer Ben Stafford says it is important to bear in mind that mortgage products are low risk compared with other areas of financial services. He acknowledges that lifetime mortgages represent a higher level of risk for the consumer but says the FSA has addressed this risk by raising the level of qualifications needed for advisers working in this area.

He says: “The FSCS looks at firms that have already ceased to trade and there can be any number of reasons for this and while they can hypothesise about potential problem areas, we will now have to wait and see.”


Independent view

So the advent of mortgage regulation is upon us.

As I pondered the changes that we may have to make as advisers to remain compliant (if we have to change at all),I wondered how much the mortgage industry as a whole will evolve.


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