Good mortgage advice is priceless – and making sure you get it is no longer just your responsibility. Shortly it will be the FSA’s too. Victoria Hartley, editor of What Mortgage magazine, reports
A recent survey revealed that the majority of people ask their family of friends for mortgage advice. But do they really have the in-depth knowledge needed to help you make a well-informed decision?
The Financial Services Authority (FSA) has long been intent on getting better information on personal finance to consumers to help them help themselves. As part of this drive, the mortgage and general insurance industry becomes regulated on 31 October this year. Regulation will cover everything from financial advertising to a ban on cold-calling. The FSA believes this will promote greater ‘clarity, fairness and transparency’ in the mortgage marketplace.
Focus on advice
The FSA believes giving consumers quality advice before they choose a mortgage is essential. The well-meaning Mortgage Code of 1997 first introduced a voluntary template of good practice for advisers. Hard-working, honest and well-trained advisory firms thrived under these conditions. Unfortunately, a few less impressive firms thrived too.
Driving up quality
In fact, the industry is predicting that several mortgage advice firms operating now will not come up to the FSA’s exacting standards and close down before October. Even more are expected to have problems adjusting to the regulated era, which again can only ultimately be good for the consumer.
After October all potential advisers will receive background checks before they get a foot in the door. Advisers will be monitored so those who underperform will be identified and retrained before any more damage is done. And if you really do get bad advice, the Financial Ombudsman Service (FOS) will be able to investigate your case if you are unhappy with the response you get from the firm that sold you the mortgage in the first place. And luckily the FOS is renowned for their general bias in favour of the consumer.
Consumer groups such as the Consumer’s Association will also be watching like hawks to ensure regulation brings about the benefits consumers were promised. Spokesman for the FSA Robin Gordon-Walker says consumers must also meet the FSA halfway and take a more active interest in their own finances. ‘The more consumers can get to grips with the subject of finance and feel an obligation to take some serious interest in their own financial position, the more likely they are to get good advice,’ he says.
What to expect
So, what real differences will you see after 31 October? The FSA is desperate to give mortgage borrowers as much information as possible for two reasons. The first is to better inform consumers and the second is to cover financial advisers in the case of a mis-selling complaint. The industry already has concerns that consumers will simply fail to read this paperwork.
But under regulation, brokers must give you an IDD or Initial Disclosure Document. This tells you who the firm is, which mortgage and insurance products they offer, any costs and how your adviser is paid, e.g. a fee from you or commission from the mortgage lender.
The Key Facts Illustration (KFI) is the next document you will receive. This should have even more pages than the IDD. If you are interested in the several products you will receive an illustration for each one. Your adviser should hand these to you in a comparative format enabling you to cross-check different mortgages’ features, such as the overall costs, against each other.
The high points
According to a survey by the Office of Fair Trading, in a single month 36 per cent of newspaper adverts in both broadsheets and tabloids were either illegal or misleading. Ray Boulger, senior technical manager with mortgage broker Charcol, says: ‘In the new world, the small print will have to go and adverts will have to be “true, fair and not misleading”.’ He suspects that the vigilance of a 30-strong team will mean that in future we’ll see far fewer adverts for mortgage products and more advertising for company brands.
Laurence Baxter, a senior adviser at the Consumers’ Association, agrees that restrictions on advertising are important but that KFIs and IDDs will have most impact on consumers. ‘The fact that advisers will have to be honest and identify themselves as salespeople for a restricted number of lenders and not a general intermediary able to advise on the whole market is important. Now consumers will know exactly what they are paying for,’ says Baxter.
Financial Services Authority
Consumer helpline 0845 606 1234
fsa.gov.uk
Financial Ombudsman Service
Consumer helpline 0845 080 1800
financial-ombudsman.org.uk