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FSA concern over sub-prime deals

The Financial Services Authority has expressed concern that borrowers are being placed on sub-prime deals when they could be eligible for prime products.

Michael Lord, head of the FSA’s department responsible for supervising small mortgage firms, warns that higher rates of commission could be an incentive for advisers to recommend a sub-prime product to clients.

He says: “We will be looking at the sub-prime market mainly because of the vulnerability of customers but also because we have seen customers getting sub-prime products when they might have been suitable for a prime one. In these situations the incentive would be the higher commission.”

Lord adds that the FSA is also looking at whether it is financially advisable for adverse borrowers who have improved their credit profile to move onto a prime deal.

He asks: “Are brokers taking the full cost of the transition into account and do these counteract the lower rate of a prime product?”

Ray Boulger, senior technical manager at John Charcol, says: “FSA rules state that a broker must recommend the most suitable product. The problem arises with brokers working only in the sub-prime market that don’t know what is available in the prime market.”

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