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Miles blames brokers for the loan churnover

Professor David Miles has hit out at mortgage brokers, saying they contribute to churning because it is to their advantage to sell shorter-term mortgage products.

He also attacked lenders, threatening them with an investigation from the Office of Fair Trading and the FSA over his belief some lenders subsidise cheap rates by keeping borrowers on expensive SVRs.

Miles&#39 interim report was published this week on the lack of take-up of long-term fixed-rate mortgages in the UK. It says the way that intermediaries are remunerated means they are keen to sell shorter-term mortgage products that will produce churn.

The report claims that intermediaries are not given incentives to explain the nature of interest rate risks, which many borrowers do not understand. Miles says he will be considering the influence of professional advice on borrowers&#39 mortgage choices in the light of intermediaries&#39 incentives.

His comments have angered brokers who believe that remortgaging is in consumers&#39 best interests. They say it would be better to educate borrowers on the benefits of remortgaging, rather than end shorter-term deals.

The Miles report says lenders&#39 attractively priced discount deals play on borrowers&#39 tendencies to look only at initial monthly payments. He says this practice is subsidised by existing borrowers paying a much higher variable rate.

He says: “The way that intermediaries are remunerated means that for some there is a tendency to want products that produce churn. There are interesting issues in the way that IFAs are remunerated to be looked at.”

Savills Private Finance associate director Simon Jones says: “Mortgage intermediaries are criticised in the report as not being incentivised to explain interest rate risk to their clients. But an intermediary with his eye on long-term relationships with his clients will want to do the right thing and we should not all be dubbed interest-rate tarts only interested in two-year deals that can be churned.”


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