More on the MMR non-advised sales and equity withdrawal

10 November 2009 | By Ray Boulger

Some other proposals are very sensible, including the new names for different types of advised and non-advised sales, and the FSA’s belated recognition that individuals giving advice or information to borrowers should be registered at the FSA as approved persons.

However, I suspect there is a catch-22 situation in the proposals for non advised sales. On the face the new proposal to use the term “non-advised sale” should be clear to borrowers, but then so should the current term, “information only.” The more questions a customer is asked before a “non-advised sale” takes place the more likely it is that they will think they have had advice, whatever they are told regarding the type of sale.

With the MMR proposing more questions should be asked to establish affordability, including on non advised sales, it may be necessary to go further to make sure customers understand when they have not had advice. The MMR’s emphasis on oral information is sensible but will be difficult to monitor. Maybe on all non-advised sales customers should sign a short one paragraph statement confirming they understand they have not advice and the implications in respect of access to the Ombudsman.

On the negative side two proposals in the MMR which need to be challenged are the banning of self-cert and fast track and restrictions on equity withdrawal.

The former appears to be based largely on a failure by the FSA to fully understand the difference between self-cert and fast track.

The justification for the later is that “by (2007) home purchase equity withdrawal replaced home purchase as the main purpose of mortgage borrowing” and that “39% of all mortgages sold in 2007 were advanced for this purpose”.

I couldn’t work out how the FSA got this 39% figure and wondered if “home purchase equity withdrawal” was something different to “equity withdrawal.” I asked the CML if it understood this figure but it was also puzzled and consequently it asked the FSA for clarification.

The FSA’s response was that including the words “home purchase” was a “drafting error” and that 39% was based on Bank of England figures of £42bn for housing equity withdrawal and £108bn for net lending in 2007.

Thus the justification for restricting equity withdrawal is based on the out of date figures of a single year. I can’t imagine why the FSA didn’t use the latest figures, i.e. 2008.

Surely it can’t be because the latest figures don’t support its hypothesis!

In 2008 HEW was negative at minus £9.1bn, with net lending at £40bn, thus indicating that the market self corrects, with no need for regulatory intervention.

Or maybe it simply couldn’t work out what percentage of sales a negative figure was. Lies, damn lies and statistics!