Mortgage advisers have broadly welcomed a possible EU ban on non-advised sales for all or certain types of mortgage customers.
The European Commission will publish its mortgage credit directive early this year and one thing being discussed by commissioners is whether some customers should only be able to get a mortgage through an advised route.
It is understood the conversations are centred on first-time buyers, those in arrears and interest-only borrowers.
The directive aims to ensure there are responsible lending and borrowing practices in the EU, sound regulation of intermediaries and prudential supervision of non-banks.
In November, FSA director of conduct policy Sheila Nicoll said around 30 per cent of transactions are non-advised. The FSA has said it will keep the non-advised route but has concerns some consumers do not know the difference between an advised and non-advised sale.
Association of Mortgage Intermediaries director Robert Sinclair says: “Discussions over the European mortgage directive on responsible lending and borrowing are continuing, with debate as wide ranging as whether or not all mortgages, or certain types of mortgage customer, should always receive advice.”
He welcomes the idea and says the proposal has some merit. He does say, however, the AMI has never believed advice should be mandatory.
He says: “We would welcome the debate on whether there are certain customer groups for which advice should be compulsory. The AMI’s position has never been that advice should be compulsory across the board but we believe advice for certain customer groups is beneficial.”
Your Mortgage Decisions director Dominik Lipnicki says all mortgage transactions should be on an advised basis. He says: “All mortgage sales should be advised because it is very difficult to talk to a client, even on a so-called information-only basis, without giving them advice.”
He adds that a mortgage is too important for a customer to get wrong. He says: “You would not expect to go to the pharmacy to get anti-biotics without a prescription just because you know what the condition is. You would still expect a doctor to confirm that and run through the options. The mortgage decision is far too important – you get it wrong and you could end up losing your home.”
Bill Warren Compliance managing director Bill Warren is concerned some customers think they have received advice, even if they have had an information-only transaction.
He says: “Making advice compulsory is a good idea in principle. The FSA has alluded to it in the mortgage market review, without being specific. The bottom line is that someone who has had a non-advised sale thinks they have had advice because they have talked to someone about it. Non-advised sales are a waste of time.”
London & Country head of communications David Hollingworth says first-time buyers and people in arrears are the consumer groups most in need of advice.
He says: “Those areas are classic examples of where advice is extremely valuable. What you would want to see from the directive is that advice has a prominent role to play.”
But the Council of Mortgage Lenders does not believe the EC should implement a “restrictive” regime. It says retail mortgage regulation should not be the focus of the EC’s attention. In a newsletter published in September, it said: “Any action by the commission should concentrate on macroprudential supervision, rather than retail mortgage regulation, and must be fully justified by the evidence of past failures across Europe.”
First Action Finance head of communications Jonathan Cornell says it might not be appropriate to implement the proposal for everybody but wel- comes the idea in general.
He says: “You may have a product that is quite complex but the person who wants it is, for example, a derivatives trader in the City and has a breath-taking knowledge of finance. Does he really need someone to ask him if he wants to fix or what his attitude to risk is?
“But it is a welcome step to start talking about higher-risk products being available only on an advised basis.”
Hollingworth is con-cerned that people who cannot afford advice might be excluded from the property market. He says: “Then you get into financial inclusion issues and whether advice is something that only a certain sector can access and whether there is adequate provision of advice for all types of people.”
Independent Equity Release Adviser Alliance spokesman and IFA Dermot Brannigan says: “I am struggling to see why this would be a good idea. People should make their own decisions and be responsible for them. If they do not want to take advice, all well and good. But to force them down that route seems a little draconian.
“Where I do think it might be a good idea is for those aged over 65 because, to use a generalisation, you are less likely to have the time or the financial resources to correct a financial mistake.”