Mortgage brokers are angry over their reputation being tarnished by the BBC's Money Programme where secret filming caught brokers encouraging borrowers to exaggerate their income to get bigger loans.
Some IFAs point out that the headline-grabbing revelations may be right but they are not the whole truth and it is wrong simply to spotlight the rogues without reassuring viewers that the majority of IFAs are trustworthy.
“There are cowboys in every industry,” says Elliot Nathan, mortgage development manager at Bradford & Bingley. “From plumbers to electricians to mortgage brokers and there are television programmes which highlight this. The Money Programme was fair in what it said about the fast-track and self-certification market because lying about income does go on. We all know it does and it is naive to say it doesn't. But the programme was not a fair representation of the whole market, as the majority of IFAs don't behave like this.”
But just because most brokers are reputable does not mean that rogue behaviour should be ignored, says David Hollingworth, mortgage specialist at London & Country Mortgages. He says: “Clearly, these programmes will affect the image of brokers and, while it may be a case of the few spoiling it for the majority, that is hardly the fault of the programme.”
But critical coverage of the mortgage industry does seem to be hard, says Man-chester IFA Simon Creeber of Glaisyers. He says: “In all industries, the minority of people can let the majority down but programmes like this particularly focus on the financial services.
I think it is easier to find individuals who let the side down because it is very clear how much brokers are getting paid, compared with, for example, car salesmen. The public's knowledge of the industry and products has gone up but its trust in advisers has gone down. The balance of press coverage like this is too anti-industry.”
IFAs argue that the programme pointed to an area which accounts for only 6 per cent of the market, according to the FSA's latest report, and there is no evidence that borrowers get into more trouble using these deals. But that will not win over members of the public who need their faith in mortgage brokers restored.
Drastic solutions such as stopping self-cert and fast-track deals are not the answer. IFAs say there are better ways to alter public perception and bring brokers back into favour. Nathan says: “There are some genuine borrowers who qualify for these deals and they would be penalised if the industry cut back on these deals. It would not be fair.”
Hollingworth says a lot of the responsibility rests with brokers rather than lenders or borrowers. He says: “The programme sought to highlight that self-cert and fast track deals are open to abuse and succeeded in supplying clear evidence of some brokers openly encouraging borrowers to lie on the application form, in order to borrow more money than would normally be advanced. The issue here is not of lenders making the deals available, as most would agree that they do have valid uses, it is one of whether they are being used correctly – whether by brokers or indeed the lenders' own staff.”
The way to gain public confidence is for all brokers to “continue to be professional” according to Nathan.
This means being professional, even if it is at the expense of losing a deal, says Creeber. He adds: “I deal with borrowers wanting self certification mortgages and, as we know, the system is open to abuse. But if a person's income does not stack up to the amount they want to borrow, I have to turn them away.
“If they ask if they should increase their income on the form, then I point out that it is fraud and I will not deal with it.”
Nathan agrees that the issue of fraud should be brought up by IFAs when dealing with borrowers rather than pretending it does not exist. He says: “When brokers are explaining to the borrower what the mortgage will mean for them, they should raise the fact that they should not increase their income to get a bigger loan. They should be clear about this and be professional about it.”
The lender also has a part to play he says. “It has been a grey area for a while but lenders could have more stringent checks in place to make sure the borrower can afford the loan.”
Lenders have been allowing the situation to develop whereby the system is open to abuse, says John Hutton-Attenborough, a financial planner at PKF. He says: “Lenders have been happy to relax the rules while property prices have been going up and the risk to them is very low. If they starting refusing to continue with loans when they discovered borrowers had lied about their income, then it would make people think twice about lying on the applications.”
Creeber says he would prefer the lenders to be more flexible about underwriting, which could mean that genuine borrowers would get loans more easily. But IFAs agree that the mutually profitable relationship between broker and lender needs to be upheld. “Brokers smooth the process for this sort of loan,” says Creeber. “Lenders deal with brokers because of this and overall it offers good value to the borrower.”
Brokers point out that self-certification and fast-track deals form such a small part of the market that it not generally thought they adversely affect the sector. They point out that fast-track underwriting applies to seasoned homeowners with strong track records. Most lenders also ask for a 25 per cent deposit which lessens the risk further. It is not in the lenders' interest to lend to borrowers who cannot afford to make the repayments so they have checks in place to ensure the loan is in their interests.
But Hollingworth says there is one significant event on the horizon which should help to restore the public's perception of the mortgage industry. He says: “As the market becomes more complicated, with wider choices available to borrowers, then the need for advice increases. Regulation of the mortgage market can only help the public view of brokers as well as in weeding out those who are less professional than most.”
The debate looks set to continue as regulation of the mortgage market may be seen as locking the stable door after the horse has bolted, says Hutton-Attenborough.”I am not convinced that the public perception of the market will alter when the new regulations come in as IFAs have been regulated since 1986 and it does not seem to alter that. We have all been tarred with the same brush,” he says.
The message has to be that the borrower needs to take responsibility as well as brokers.