Non-advised sales are the real danger to consumers, not fast-track products

15 March 2010

I disagree with some of the proposals in the Mortgage Market Review and in my submission on the paper to the regulator I made the following points.

The paper states that there is a clear case for asking for proof of income in all mortgage cases without any evidence being provided. In fact, the only evidence supporting this position comes in the form of a graph showing mortgage arrears in Q1 2009 which bundles fast-track and self-cert deals into the same band.

Since many small firms have been hit by the recession is it not possible that true self-cert cases distort the arrears rates shown?

Also, there is no evidence to show for how long this fast-track or self-cert arrears data has been gathered.

I would have thought lenders providing such loans would have been able to spot arrears problems and make adjustments.

There’s also no evidence presented in the report of historic arrears relating to different product types. This would be more realistic than looking at a short period during which there has been a severe downturn.

If the bulk of arrears have appeared in recent months surely the fault is more likely to lie with the impact of the recession than with the affordability of the initial loans. In other words, is this not simply a case of loans becoming unaffordable rather than them being unaffordable from the outset?

Meanwhile, it is shocking to note that 30% of the market is non-advised and I can see no reason why this should be permitted.

In the case of fast-track and self-cert, I wonder how many of these deals were provided on a non-advised basis. Could it be that many were direct sales with no affordability or suitability checks applied?

I remember in the early days of mortgage regulation a guidance paper was issued by the Financial Services Authority stating that “it would be difficult to see how a mortgage could be provided without advice”.

The regulator seems to have lost sight of this view and now proposes retaining the non-advised option on the grounds that customers want it.

But the MMR states that customers should expect that providers will not give them unsuitable products, so the FSA acknowledges that customers expect to receive advice.

If non-advised sales are to be retained there should at least be the option of advice when customers contact providers. This should be reinforced with a statement along the lines of: “Unless you are sure of the type of mortgage you want and are certain it is suitable this service is not appropriate for you. If you proceed you accept you will have limited rights should you find it is unsuitable.”

 

Customers should then be offered the option of advice. The case for banning self-cert and fast-track deals is not proven. The real enemy of consumers is the non-advised market.

MICHAEL NORWOOD
ADVISER
MORTGAGES MADE EASY!