Single-lender cascading could land brokers in deep water and fuel a compensation feeding frenzy not seen since the start of the endowment mis-selling scandal, Personal Touch Packaging has warned.
Rob Jupp, managing director at the firm, says dire consequences could be in store for intermediaries going down the single lender route.
Jupp says the FSAs Mortgage Conduct of Business rulebook is quite clear when it comes to ensuring that a recommended mortgage is suitable for a client.
MCOB 4.7.8 states: A firm should, out of all the regulated mortgage contracts identified as being appropriate for that customer, recommend the one that is the least expensive, taking into account those pricing elements identified by the customer as being most important to him.
Jupp cites the scenario in which a 5.09% two-year fixed rate is chosen from a sourcing system. The case is then scored with an online decision in principle, but owing to the clients circumstances they are cascaded to a rate of 7.29%. The client is told of the new rate, accepts it and the case goes on to complete.
But Jupp says: Had the case been through multi-lender cascading, it would have fitted a two-year fixed rate of 5.79% and with lower fees. In this instance, if you then look at the interest payments and fee saving, the client would have ended up 5,120 better off.
We all know the sub-prime market contains clients who will be happy to jump on the next mis-selling bandwagon. But if you can’t show a suitable audit trail, you leave yourself wide open.