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Get down to the facts

Research by the FSA in the field of lifetime mortgages has found significant weaknesses on fact-finding carried out by advisers before coming up with a recommendation.

Firms must have close regard for knowing and understanding all elements of their clients’ financial circumstances.

It is relevant to have some regard to average statistics, to consider the reports that are issued and to reflect on how the generality may apply to the individual.

The success of the economy over the past few years has been sustained by consumer spending, and income levels have assisted this but the rise in property prices has given birth to a group who have found themselves with an increasingly valuable asset, generating feelings of wealth. Many have used the opportunity to remortgage to enjoy a higher standard of living and, with low interest rates the position has been sustainable.

This may be coming to an end. House prices vary from area to area but there is a consensus that prices are more likely to go sideways for a while than rise to any significant extent. Servicing existing debt will remain manageable, with interest rates no longer rising and some hope now that the next move could be downward.

However, for some, the prospect is not so good and some people need to review their spending radically.

The Office of National Statistics’ annual survey reveals the typical family is spending 20 per cent a week more that it earns – an average of 6,600 a year. The average translates into much bigger numbers for some people. Some banks, including Barclays, HSBC, RBS, and Lloyds TSB have issued warnings that some customers are having difficulty paying back loans and Lloyds TSB has increased its bad debt charge.

It is essential that mortgage clients understand the nature of their commitment. Consolidating unsecured debt into the mortgage is not only expensive over the life of the loan but also can place the home in jeopardy. An adviser may rely on a lender’s underwriting process to determine whether a particular case is affordable but that would not be providing proper advice.

The FSA rules say that in assessing affordability, the adviser must give due regard to the information provided by the client on income and expenditure, other resources, any likely change to income, expenditure or resources and the cost of the repayment once any special discount period comes to an end, based on the assumption that interest rates remain unchanged.

It might be pertinent to probe expenditure carefully to ensure that all aspects have been considered.

For some people, their fundamental requirements of their mortgage adviser are for them to get access as quickly as possible to the amount of money they feel they need at the most competitive price. Any adviser will try to match expectations but the professional will do so having full regard for their clients’ best interests in the short and longer term. Well advised clients form the basis of a loyal customer base and recommendations will enable the firm to enjoy growth which will be sustainable through all market conditions.

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