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Moore&#39s Code

Compared with the average life and pension IFA, mortgage brokers are in clover.

The regulatory demands placed on mortgage brokers are nothing against the demands placed on the average life and pension IFA.

As for the margin pressure, it is just not there. Roll up, roll up, let us bag those proc fees.

Yet a mortgage is a commitment that is just as important, if not more important, than a pension.

It can certainly get the average punter into far more grief. A squeeze on your retirement savings because of the poor performance of your pension provider, or even a misselling episode, is nothing compared with the consequences of taking out the wrong mortgage and finding yourself in trouble as a result.

Your retirement may be less comfortable as a result of the former but the latter could see you lose your home and force you into the arms of a profiteering sub-prime lender should you find yourself in a better position later on and want to dip into the housing market again.

The life and pension market is still in a severe state of flux and the subject of two far-reaching reviews – Ron Sandler&#39s Treasury-sponsored outing and the FSA&#39s investigation into with-profits.

The Government is desperate to get it right because it wants the public to provide for themselves and it knows they will be loath to do this with an industry that has not always proved itself trustworthy.

Yet the way the mortgage market operates and the way it serves the consumer raises just as many, if not more, questions. Remortgaging levels are increasing at break-neck speed and it is no surprise. The current structure of the market enables a savvy broker effectively to churn clients between fixes, picking up a fat procuration fee each time he or she does this.

In fact, the proc fee system directly encourages this type of behaviour, as Nationwide, which opted to eschew fixes in favour of the cheapest standard variable rate on the market, has found to its cost.

There do not appear to be any systems in place to prevent this. Unethical brokers can simply point their clients towards the fix which pays them the best proc fee and laugh all the way to the bank. There is virtually no chance for the poor punter to find out if the advice they have received is good and the product they have been recommen-ded is competitive, given the bewildering array of deals available at any one time and the rapid rate of change.

Remortgaging also psychologically encourages people to take on more debt, not really a good idea given that the economy is in less than robust health, with the number of redundancy announcements ticking up at an ominous level.

Switching willy-nilly between fixes may be good for some people. The smart consumer may be more than happy to move from cheap rate to cheap rate.

But it is not good for everyone and an ethical mortgage adviser really ought to take account of his or her client&#39s circumstances, attitudes to risk and ability to pay before recommending the best product for them.

He or she really ought to do a fact-find, then justify their selection, just as the life and pension IFA has to.

No doubt, there will be predictable howls from brokers who read this saying: “But we do that.”

Well, so they should. The problem is that it is quite clear there are plenty of brokers out there who are not doing this – who are doing the opposite by utilising the structure of the market and the lack of regulation to line their own pockets.

The current regulatory system which requires lenders to regulate brokers is ridiculous. The CML mortgage code is all very well but it has been proved any number of times that voluntary regulation in financial services tends to fall flat on its face.

The Government has warned that it may need to improve the situation but it has been issuing these types of warning for years. Actions tend to speak louder than words.

Interest rates are low at the moment. The housing market may be booming but the recent set of banking results did not give any indications of greatly increased repossessions and provisions for home loan-related bad debt. Yet economic indicators remain ominous. The current situation is not likely to last.

Lenders say they are confident that a real downturn will not trigger the type of carnage we saw in the 1980s but then they would say that at results time.

Ministers have a window of opportunity to take action to ensure this alleged confidence is not misplaced and clean up this market once and for all. It would be in everyone&#39s best interests for them to take that opportunity while it is still available.

James Moore is a finance reporter at The Times


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