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Prime probe shows short-term focus

FSA has concerns over cheap introductory offers

The FSA has raised concerns that cheap introductory offers in the mainstream mortgage market could lead to borrowers struggling to pay off their homeloans.

In the regulator’s first major blast at the prime lending market, in its effectiveness review of mortgage regulation, it found that 41 per cent of customers choose a mortgage on price but focus on the initial payments rather than longer-term affordability.

In January, Leeds Building Society introduced a 1.89 per cent homeloan deal that rocketed by almost 350 per cent after two years.

The FSA also found that average APRs have risen by almost 1 per cent since before M-Day while lenders’ retention levels have improved since mortgage regulation, partly due to exit fees almost doubling and set-up fees up by 52 per cent.

The FSA is also concerned that some prime brokers and lenders fail to provide initial disclosure documents, with phone sales practices faring worse. It found that IDDs were issued by intermediaries in 73 per cent of face-to-face interviews where required but only in 28 per cent of phone interviews.

It says mortgage regulation is working well in the prime sector and it has no plans to alter any rules but “there continues to be pockets of non-compliance relating to basic requirements”.

The FSA says that it will look into the effectiveness of regulation in the sub-prime and lifetime mortgage markets next year.

It says: “There is a potential risk that consumers may get a payment shock when the discount period ends if they take out a very low rate, but where there are no foreseeable changes in the customer’s circumstances that mean the payments are affordable.”

Alexander Hall chief operating officer Andy Pratt says: “Brokers have to educate customers about affordability as we get a lot of people coming in thinking in the short term.”


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