The Financial Services Authority has warned that after two years of regulation there are still worrying cracks in the information brokers are giving to clients.
Speaking today at the Mortgage Business Expo, Clive Briault, managing director of retail markets at the FSA, says the pressure is starting to increase on the processes for giving mortgage advice, and this is already revealing some worrying cracks.
He says: “We looked at the quality of advice processes in investment advisory firms earlier this year, and now we are looking at the quality of advice processes in mortgage firms.
“We aim to announce the results of this work at the beginning of next year. Early analysis of the results is worrying – particularly on the processes relating to affordability, lending into retirement, interest-only mortgages, and training and competence.
“We are continuing to monitor the provision of good quality advice within the mortgage sector to set a baseline against which future improvements can be made and measured. This will remain a priority for us next year.”
He says it is also particularly concerned about what the quality of advice processes work says about the approach to affordability in mortgage firms.
Briault says: “It is too early in the project to confirm numbers, but it is becoming clear that affordability is not being adequately discussed and assessed in an unacceptable number of firms. Indeed, in a worrying number of cases, affordability is not being discussed with customers at all.
“Some advisers believe this is the sole responsibility of the lender. Let me be clear about this. Both the adviser and the lender have responsibilities to ensure the mortgage is affordable; neither party can delegate responsibility to the other party.”
He says the second stage of the Effectiveness Review will take place next year and will focus on parts of the mortgage market where it believes there is likely to be consumer detriment, including lifetime mortgages and the sub-prime market.
He says during 2005, 24% of all new mortgages were on an interest-only basis. In more than three-quarters of these cases, accounting for 19% of all mortgages, it was not clear from its thematic work whether a repayment vehicle was in place.
He says: ‘This seems a high proportion to us. So we are investigating, through interviews with 750 consumers who have recently taken out an interest-only mortgage, whether advised and non-advised customers understand the risks of an interest-only mortgage. We want to know whether they make informed decisions when choosing this method over a repayment mortgage.
“We will publish the results of these two projects – on the quality of advice processes in firms in the New Year, and on interest-only mortgages before the end of this year.”