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IFAs caught in the mortgage Cat trap

Intermediaries and lenders believe finalised plans for Cat-marked


mortgages have muddied the already murky waters surrounding the role that


IFAs will play in the benchmarked market.


Legal & General marketing manager housing market Richard Verdin says: “I


genuinely do not think that IFAs have differential earnings on their mind


when they are advising on a particular product over another but if


Cat-marked mortgages are not sold in large numbers, a trap will be set for


IFAs to get caught in.”


Savills Private Finance managing director Mark Chilton says: “How will


brokers provide best advice when they will not get paid for advice on one


product? The less reputable broker will skew advice away from Cats.”


Many lenders question whether the Government&#39s decision to encourage the


“execution-only” route for mortgages will help the FSA achieve its goal of


a financially empowered and aware public.


Some believe that it could lower the knowledge base of clients and confuse


the public into believing that Cats are Government-approved and the best


product regardless of other options.


Scottish Amicable national mortgage manager John Malone says: “It will be


a big issue for IFAs to get over to clients that the Treasury&#39s kitemark


does not necessarily mean it is the right product for every client.”


Verdin says: “We seemed to be heading down the fee route but the latest


news seems to be pushing against the wind. But with a bit of luck IFAs will


be able to prove their value.”


As the amount of time and admin it takes to advise a client on a mortgage


plus the admin has grown, IFAs are wondering if a procuration fee alone


will be a fair reward for their advice.


Mortgage Code Compliance Board chief executive Luke March says: “It is a


great disappointment. If lenders want Cats to succeed, they need to


increase the procurement fee. If brokers are trained well, they should be


well rewarded.”


To make matters worse, while payments to advisers are restricted, their


workload may increase, with every intermediary having to rewrite their


terms of business.


Malone says: “Section 165 of Consumer Credit Act says the maximum a client


can be charged is £5 if the case does not proceed within six months. IFAs


will need a sentence in their terms of business which is a caveat on


Cat-marked mortgages.”


A new set of uncertainties have been added to what is perhaps the most


uncertain sector of financial services.

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