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Misselling fear over two-year fixes and overhangs

Two-year fixed rates and ext-ended overhangs could leave mortgage intermediaries facing misselling claims, according to experts at the Mortgage Business Expo 2004.

Hampton International adv-isers Kevin Duffy and Jonathan Cornell said that despite the expected rise in sales of twoyear fixed rates in 2005, customers will feel hard done by when products revert to standard variable rates.

Duffy also warned against the use of best-buy tables, saying they have the potential to “lead consumers down the wrong path” as they invariably display differing results.

Cornell voiced concerns over extended overhangs where consumers at the end of a two-year fixed rate as low as 2.8 per cent have a four-year to five-year tail period on a standard variable rate of 6.8-6.9 per cent, resulting in a monthly payment rise from 467 to 1,133 for a 200,000 interest-only loan.

Wriglesworth Consultancy managing director and econ-omist John Wriglesworth said: “One of the biggest problems is advisers putting people into two-year fixes and misselling. I do not blame the lenders but the consumers and commission-eager churn-buying brokers.”

Currently, advisers have to explain to customers the ramifications of a 1 per cent variation in interest rates but they do not have to explain 2 per cent rate variations.

Wriglesworth said: “In a nanny state, where the Government interferes too much, the FSA will come down on advisers, piling on the pressure. In this type of atmosphere, it will be labelled as a misselling scandal just as we saw with endowments.”

Duffy said: “In the medium term, maturing two-year fixed rates coming on to a rising interest-rate curve is very ominous.”Mortgage Expo, p14-15

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