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Mortgage legislation is a cause for concern

The mortgage industry fears the Government is again brushing consumers&#39 concerns aside following its decision to go ahead with what many view as the ill-conceived idea of a seller&#39s pack, while dropping any plans for compulsory insurance regulation.

The Queen&#39s Speech last month clearly indicated the way the Government intends to push through any opposition in the mortgage market.

To the surprise of cons umer groups, proposals to stop lenders penalising borrowers with compulsory insu rance tie-ins did not even feature in the speech.

But the controversial and much criticised sell er&#39s packs, designed to speed up the house-selling process, were included in the legislative timetable.

The decision to clean up house selling was initially welcomed by the mortgage ind ustry who supported plans to speed up the way homes are sold.

But the Bristol trial of the seller&#39s packs last year was far from successful. Only 60 mortgage completions were made out of a projected 250, even though the trial packs were free of charge.

Leading the attack against the packs at last month&#39s Council of Mort gage Lenders annual conference, dir ector general Michael Coogan said: “What would happen in markets with low demand and low value properties and when consumers have to pay for them? This has not been tested, so we do not know.”

But barely a week later, after bending to Government pressure, he sent out a letter asking CML executive committee members to back him in doing a U-turn and “taking a less high profile and critical approach” to the seller&#39s pack.

The letter explains the reversal by revealing the Dep artment of the Environ ment, Transport and the Reg ions had made it clear it was “very unhappy at the CML&#39s view” of the pilot trial.

With the Government putt ing pressure on detractors to soften their views, it is clear the packs will be forced thro ugh despite opposition. Some mortgage ex perts believe that because proposals to clean up house selling was a manifesto pledge, the Government is determined to be seen to have achieved everything it committed itself to doing.

John Charcol (Guildford) sales manager Colin Bell says: “Having introduced the idea, the Government would find it hard to go back on it, especially if they haven&#39t got an alternative solution to make it watertight.”

Cheltenham & Gloucester head of communications Peter Mounty says: “If the Govern ment fails to go through with something in its manifesto, the opposition will be on them like a ton of bricks.”

The industry accepts there is a need for something to be done about the way houses are sold but is sceptical about the way the Government is forcing through legislation based on an unsuccessful trial.

Riach Independent Fin an cial Advisers proprietor Bob Riach says: “The Govern ment would do better to investigate why the trial didn&#39t work. The packs should be optional for a period for them to be re viewed.”

The Government may be keen to make seller&#39s packs compulsory but has shown itself to be less than enthusiastic about introducing legislation to stamp out mortgages with compulsory insurances attached.

Trade Secretary Stephen Byers outlined proposals in a 1999 White Paper to much acclaim by consumer groups which had been lobbying for the move for some time. But the Government&#39s decision to sweep the proposals under the carpet is attracting criticism from IFAs and consumer groups.

The move has been bran ded “a betrayal” by the Cons umers&#39 Association which believes the decision will only be to the detriment of consumers who are unaware of such back-door expenses.

Some in the industry suggest the Government is planning for a general election this year and does not have the legislative time. But the Dep artment of Trade and Industry simply claims there is no longer any real need for legal enforcement.

It says since the White Paper was published, lenders have acted pre-emptively in anticipation of legislation, so that only 5 per cent of mortgages on the market have compulsory insurances.

A DTI spokesman says: “Mr Byers welcomes the fact that lenders have listened to his concerns.”

But consumer groups and financial advisors point out that the low number of tied mortgages available is un likely to last for long because lenders are no longer de terred from exploiting unassuming consumers.

Pretty Technical Partner ship partner Kim North says lenders can “now do as they wish” and that the Govern ment is leaving it to chance that they will not revert back to bad practices.

Riach says: “How can consumers have freedom of choice with compulsory insurances which may not be competitively priced? Now the proposals have been dropped, lenders will start putting the insurance back on again.”

But some experts believe that despite a lack of legislation, it will ultimately be IFAs and brokers who keep such products out of the market.

Scottish Amicable national mortgage manager John Mal one says: “I would not be surprised if some lenders now come back out with these mortgages but I think that most brokers will be more discerning.”

He believes many brokers will simply walk away from selling mortgages with compulsory insurance, much as they currently do with mortgages with attractive headline rates but long-term redemption penalties.

However, the Government is playing with the protection of consumers and, like mortgage advice, is relying on the market to police itself.

The DTI says it is “keeping the matter under review” but whether this will be much comfort to consumers is yet to be seen.

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