I recently attended the FSA’s presentation on the forthcoming Mortgage Market Review.
Firstly consider IFAs who have had to prepare for the new RDR regime. Also bear in mind that a member of the public can go to a mortgage adviser who only needs to be qualified to Level 3 and have regulations that are more of a stepping stone than a hurdle.
The customer can (for example) take on a debt for £300,000 over a period of 25 years, with additional initial costs such as stamp duty, solicitors fees, surveyors fees, lenders fees, etc. This for probably their largest single asset. Compare this to what is required from an IFA when advising on what is by comparison an Isa for £11,280.
There is no such thing as independent or restricted in the mortgage market. Indeed at the meeting it was stated that the aim of the MMR was to have a flexible market better suited for consumers.
The previous lax mortgage market carries plenty of blame for our present parlous economic state. Affordability is now at last to the forefront, but here again the adviser has the get out because the ultimate responsibility for affordability lies with the lender and not with the adviser.
Adviser firms must assess that the customer meets the lender’s criteria and that the advice is appropriate. When asked whether these rules also apply to the mortgage add-ons such as life assurance, household cover etc, we were told that this is a different department. Is this buck passing? What about having a homogenous regime?
Advisers do not even have to consider the best deal if this is not available to them. The only obligation is to offer the best deal for those products that are available and no mention need be made that sometimes going directly to the lender might well be a far better deal. (How is this TCF?)
For those IFAs that comply with record keeping requirements, it will come as somewhat of a shock to learn that the requirement for record keeping for mortgages is only 3 years.
Bearing in mind that most loans are for 25 years I find this absolutely amazing.
I was left wondering whether the FSA had been busy reinventing the wheel. As one who was previously regulated under MCCB it seemed to me that the old regime was far more robust than that which currently exists and what is proposed.
Many still produce mortgage reports for clients running to about 9 or 10 pages. When this was mentioned the response was (and I quote) “we don’t want to inundate the customers with too much paperwork as we know they don’t read it anyway”.
If the mortgage people recognise this why don’t the people that regulate our investments and pensions also recognise it?
Many small advisers use mortgage clubs. In many cases the mortgage club has absolutely no input, yet they appear on the Key Features document as receiving remuneration even if we as intermediaries don’t take the procuration fee. When asked about this they said it is a commercial decision; but it is also a commercial decision to decide whether lenders are treating customers equitably with regard to interest rates for existing borrowers – so this merely a ‘cop out’. Privately they did agree that this is something that ought to be looked at – but why hasn’t it been already?
There are good points in the MMR. They have tightened up on interest-only loans – not before time. But with typical regulatory double think, they have the brass neck to state that the FSA does not want to make things worse. Why? Because their masters at the Treasury rely on people getting into debt as deeply as possible in order to keep the economy afloat.
Concluding remarks were also just as illuminating. They mentioned the fact that there is a EU mortgage credit directive which is not yet finalised and could well impact on their own rules. So yet again we have the regulator running in front with crossed fingers hoping that EU legislation will not make their work irrelevant and liable to change – hardly a model of efficient management.
In concluding they were very concerned to ensure that there was readiness and implementation of these new rules in time for April 2014. But seeing how weak these rules are, I fail to understand how intermediaries presently involved in the mortgage market are not only ready but have systems and controls in excess of these requirements. If not it rather points to a wild west market.
That lenders have to shape up is, of course, a given. I cannot see IFAs having too much difficulty jumping these hurdles. But it is nice to know it is keeping people employed at Canary Wharf.
Harry Katz is principal at Norwest Consultants