"Which?" magazine has condemned mortgage advisers for giving awful advice to homebuyers. However, the industry only has until 31 October to clean up its act!
Consumer champion Which? magazine has accused high-street mortgage advisers of giving dreadful advice to prospective customers. However, the industry only has until Halloween to get its act together before tougher rules come into force...
Seven researchers from the Consumers' Association posed as first-time buyers in order to visit 39 mortgage advisers between September 2003 and January 2004. These mystery shoppers visited most of the big-name banks, building societies and estate agents, including Abbey, Halifax, HSBC, Lloyds TSB, NatWest, Nationwide BS and Northern Rock.
Only three of these high-street advisers offered good advice, with 36 out of the 39 (92%) failing to follow the voluntary Mortgage Code. Some advisers failed to inform customers that they could not give independent advice, but could only recommend their employers' mortgages, which is a serious breach of the Code. In addition, seven advisers failed to mention the Code at all, and fourteen misled the researchers about it. What's more, 23 advisers did not describe the different deals available, and 21 didn't properly spell out the different ways to repay a mortgage (repayment or interest-only). Oh dear!
Which? also warned that advisers appeared to be inexperienced or poorly trained, while most were more interested in selling insurance products (which pay fat commissions) than giving good overall advice. Some 'independent' advisers boasted that they could search the entire market for home loans, but were mysteriously quiet about being tied to a single company for protection products!
However, things are set to change from 31 October, when the Financial Services Authority (FSA) takes over the regulation of mortgage advice from the Mortgage Code Compliance Board (MCCB). From this point, the compulsory FSA regime will replace the more lenient MCCB rules. The FSA is expected to rule with a heavier hand, which will mean an end to 'light touch' regulation of mortgage advice. Many lenders are spending a lot of time and money preparing for the new regulations: Direct Line recently withdrew from the market and will not sell mortgages until after the new regime takes effect.
In my opinion, FSA regulation of mortgages can't come soon enough, even though it will surely mean that some homebuyers will find it harder to get a mortgage. After all, tougher rules - and financial penalties for mis-selling should put an end to dodgy self-certification mortgages and other shady practices. If you're struggling to get onto the property ladder, the last thing you need is ropey mortgage advice. And exaggerating your income in order to get a larger loan is plain barmy - you could end up losing your home as a result. Eek!
Finally, if you want quality help with home loans, don't walk down the high street. Instead, contact a reputable, independent, no-fee mortgage broker, such as London & Country, Alexander Hall, Clear Cut Mortgages or the No Fee Mortgage Company. These companies will find the deal that's right for you by checking around 8,000 home loans from over a hundred different lenders.
More: Check out the rates in our Mortgage centre.
