FSA CONSULTS ON MORTGAGE REGULATION

The FSA has published its consultation on proposals for regulating mortgage sales.

The consultation closes on November 11 2002. The paper is the first in a series of consultations, which will see mortgage sales regulated from around mid-2004.

Sarah Wilson, director of the high street firms division, says: “For many consumers, taking out a mortgage is one of the most significant financial commitments they will make in their lifetime.

“We want to make sure that consumers get clear comparable information on mortgages and that, where they get advice, they are recommended a suitable mortgage.

“We aim to introduce a regime that achieves this goal in a proportionate, cost-effective fashion.”

The FSA regime will regulate mortgage lending, mortgage administration, advising on a regulated mortgage contract and arranging a regulated mortgage contract.

Firms that will need authorisation include banks, building societies, specialist lenders and mortgage intermediaries.

Mortgages to be covered include loans that are taken out by an individual or trustee, and are a first legal charge on the borrower&#39s property. This property must be located in the UK and must be at least 40% occupied by the borrower or immediate family.

As well as mortgages for property purchase, the regime will cover other products where the security is a first charge over the borrower&#39s residential property, including home improvement loans, debt consolidation loans, lifetime mortgages and secured credit cards.

The regime will not cover second charge loans, most buy-to-let arrangements and loans to companies.

The key areas for regulation are:



Requirements on firms relating to the sales process whether they give advice or information – for example:

  • where they give advice, they would need to consider affordability and which mortgage(s) best meets the consumer&#39s needs and circumstances; and
  • where they give information and use filtering questions that narrow down the selection of mortgages, they would need to script the questions and make sure sales staff don&#39t stray over the boundary and give advice.

  • A second area is the provision of clear information about the mortgage itself in a prescribed order and layout so that consumers understand the terms of the mortgage and can compare it with others. This builds on proposals issued last year.
  • Proposals on fair treatment of consumers covering, for example, unfair sales practices and excessive charges.
  • Requirements relating to mortgage advertising and marketing material
  • Information that firms must disclose about themselves so that the consumer knows what service they will get and what fees if any the firm will charge.



    The FSA has also published a feedback statement on CP98 which contains near-final rules on some post-sale issues and a consumer research report on mortgages.

    Visit the FSA website at www.fsa.gov.uk for more information.