There are positive steps that each of the key parties can take to help struggling borrowers. Where clients cannot remortgage their way out of trouble, brokers may be faced with two options:
Sympathise but explain that you cannot help because of the credit crunch. Advise them to discuss payment difficulties with their lender and suggest contacting the local Citizens’ Advice Bureau.
Ask clients to bring along their bank, credit card and loan statements. Draw up a budget to identify realistic reductions in monthly outgoings and prioritise the mortgage payments over all other commitments.
Brokers who consider the long-term interests of their business will choose the second option because:
Helping clients in difficulty means they are less likely to blame you for their predicament, so the risk of complaints to the Financial Ombudsman Service is reduced.
The budget analysis is an opportunity to demonstrate the affordability of the mortgage you recommended.
You will secure customer loyalty and potentially more referral business.
It shows you are committed to treating customers fairly.
Avoid exploiting high loan to value, high income multiple borrowers by imposing unduly high rates when their initial deals expire, increasing the risk of arrears.
Ensure arrears teams are trained and resourced properly to provide practical help to struggling borrowers.
Give brokers information about follow-on deals, so clients can make informed decisions about whether to stay or switch to lenders.
Cooperate with brokers by sharing information on arrears where customers give permission.
The FSA can:
Give brokers credit if they help customers budget when they get into difficulty.
Recognise that borrowing limits are determined by lenders, not brokers, when using the regulatory toolkit to encourage restraint.
Consult brokers about the workability of good and poor practice guidance on affordability before publishing it.
Recruit staff who understand mortgage advice and recognise that mortgages linked to home purchases cannot be unwound like unsuitable investments. Requiring brokers to review the affordability of past mortgage sales is potentially a waste of time and money.
Concentrate thematic resources on arrears handling practices.
Review the cold-calling guidance to avoid catching brokers who ring existing customers whose deals are about to expire.
Recognise that advised sales and allowing clients to take responsibility for their decisions are not mutually exclusive.
The FOS can help by:
Not considering complaints about affordability, except where vulnerable consumers have been subjected to hard-sell tactics or misled over the true cost of servicing the debt.
Not assuming a mortgage is unaffordable because there is not a breakdown of outgoings on file.
Providing guidance to consumers on the principles used in assessing affordability complaints.
Appreciate that disciplined monthly budgeting is required to identify and stick to spending cuts.
Prioritise the mortgage over everything else.
Taking advantage of debt advice before it is too late. Neil Walkling is head of compliance services at Sesame