Many brokers outsource the placing and advice of certain types of mortgage, such as lifetime and second charges, to specialist brokers. However, the original broker still needs enough expertise to identify situations when such solutions may be appropriate.
Outsourcing may be for commercial reasons, perhaps because a broker does not have enough business of a certain type to justify expending the time necessary to become competent in it. However, regulation will often be a factor, particularly in respect of lifetime mortgages, as an additional authorization is required to advise on this type of mortgage.
With the launch by Hodge in July of a hybrid mortgage which, from a regulatory perspective, is a lifetime mortgage, the differential between lifetime and other mortgages has become blurred. This mortgage is interest-only with sale of the property as the repayment strategy and a maximum LTV of 50 per cent. It is available to borrowers between ages 55 and 70, with affordability calculated by reference to pension income.
The initial interest rate is a five-year fix at 4.75 per cent and this innovative mortgage starts to fill the gap left by the failure of mainstream lenders to offer ultra low-risk, low-LTV, affordable interest-only mortgages to older borrowers who have a guaranteed income for life.
Until the age of 80 (for the younger borrower if a couple) this is a normal interest-only mortgage but from that age it offers the option to roll up interest as on a lifetime mortgage. Hence its regulatory status.
Because of the onerous interest only criteria imposed by most of the mainstream lenders which still offer interest only, this hybrid mortgage will be one of the very few choices for some borrowers coming to the end of an existing interest-only mortgage who want, or need, to extend their borrowing and can afford to do so.
However, even though for between 10 and 25 years this mortgage is very similar to any other five year fixed rate interest only mortgage with a robust repayment strategy, most mortgage brokers will not be able to recommend it because they have chosen not to obtain the additional regulatory registration required to offer lifetime mortgages.
Such brokers can, and hopefully will, refer any clients for whom this type of mortgage might be suitable to a broker authorized to offer lifetime mortgages. However, some brokers will not be familiar with products they are not authorized to sell, let alone their detail.
As a result some clients are likely either to be recommended a less suitable and/or more expensive alternative or advised that no suitable mortgage is available to them.
It is unlikely the Hodge mortgage will be the last hybrid scheme and I believe it is now imperative for the FCA to reconsider the need for brokers to require a separate registration to sell lifetime mortgages. Consumers, who after all are the very people regulation is designed to protect, will not understand an arbitrary distinction between lifetime, hybrid and other mortgages.
Brokers who wish to call themselves independent should be required to be competent to offer advice across the whole range of mortgages, which also now includes shared equity, and only require a single authorisation to do so. Clearly, some transitional arrangements would be needed to ensure competence until a new exam syllabus is agreed.
Ray Boulger is senior technical manager at John Charcol