At the start of a brand new term for the mortgage industry, the FSA is sending mortgage advisers back to school to sit or retake professional exams.
The proposals are FSA chairman Howard Daviesྐth directive this year and form part of the Government's plan to regulate lenders and mortgage advice from mid-2004.
As many as 70,000 people will have to pass a formal written test and even those who already have professional qualifications may be required to take top-up exams.
Intelligent Finance head of sales and marketing Ian Jeffery, who has worked in the mortgage industry for 25 years, believes the plan is just what the industry needs.
He says: “Qualifications are necessary to force a wider knowledge of the industry from end to end.”
There are around 74,000 people registered to give mortgage advice but only 32,000 have passed professional exams Jeffrey believes there needs to be a process of continuous education in the industry. He says: “There is a commercial imperative for these advisers to have professional qualifications to maintain their incomes.
“A mortgage is such a huge investment – the biggest that most people will ever make – and consumers need the best advice available. They have to be made aware of the pitfalls as well as the benefits.”
The FSA will be regulating the advice provided before a mortgage contract is arranged – not the actual products themselves.
FSA director of high-street firms division Sarah Wilson says: “We want to make sure that consumers get clear comparable information on mortgages and that where they get advice they are recommended a suitable mortgage.”
The FSA wants to split mortgage advice into two main areas – divided between straightforward advisers who select the best mortgage for their client and arrangers who provide information and help for customers to narrow down their search.
These brokers will now have to be qualified and authorised to practise by the FSA.
Banks, building societies and specialist lenders will also be required to seek authorisation if they sell and advise on mortgages.
There will be some notable absences from the class of 2004 when the rules take effect. Areas not covered by the new regulation include buy-to-let mortgages, second mortgages and home-reversion plans.
The Council of Mortgage Lenders supports the proposals to introduce more qualifications for advisers and strongly backs the Treasury's decision to exclude buy to let from the legislation.
CML public affairs officer Bernard Clarke says: “Our view is that buy to let is different from homeloans. These customers need different advice because they are buying an investment product -a completely different area from owner-occupiers.”
The exclusion of reversion schemes which allow owners to remortgage part of their home has led to criticism from people who believe the reforms will leave the most vulnerable consumers – the elderly – at the mercy of unscrupulous mortgage advisers Clarke says: “We would like the FSA to explore the possibility of introducing regulation on equity-release schemes early, before 2004. There are real concerns about the growing group of elderly consumers buying these products.”
Intelligent Finance believes these are exactly the more complicated areas of the market that should be subject to tighter regulation.
Jeffery says: “It is a mistake that equity release has not been included. I suppose the FSA could be dealing with it little by little but it is a mystery why this area has not been included. At a time in their lives when hardship should be behind them, elderly people want to have security. Borrowing has to be a smaller part of their income and they need good advice to ensure this.”
But some brokers disagree over the FSA's decision to consider buy to let as commercial investment, pushing it away from the protection of regulation.
Savills Private Finance director Mark Harris says: “I have no idea why buy to let or equity release have not been included in the reforms. It makes no sense at all.
“There is nothing problematic about including these in the legislation. I just do not understand why this could not have been done already.”
While the arguments continue over what should or should not be included in the new FSA regime, chairman Howard Davies seems keen to wash his hands of the whole buy-to-let area of the market, publicly announcing the quick sale of his own buy-to-let property at a cricket match recently.