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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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