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Sound borrowers are being penalised

There’s an injustice in the world of secured loans – successful borrowers who tell the truth and whose loan applications go through end up paying for all those who lie, cancel at the last moment or default on payments.

This is due to the regulations that mean brokers can only charge fees to successful loan applicants, while the most unsuccessful ones can be charged is £5.

Supposedly this is to stop borrowers feeling pressurised into taking out loans because they have paid fees, but in practice it is penalising those who do.

There are many reasons why potential borrowers explore the secured loan route and then decide not to proceed.

They may have overestimated the value of their properties and the amount of equity they can release, or they may fail the affordability checks. They may have given incorrect details on their application forms, their circumstances could have changed or they might just change their mind.

Everyone has the right to change their mind and not all loans will reach completion, but by being unable to charge any sort of fee for loans that do not complete, brokers are forced to charge higher fees to customers who go all the way.

To rectify this, brokers should at least be able to charge all secured loan borrowers the cost of the surveys on their property, as happens in the mortgage market.

Broker fees need to be policed and regulation needs to be in place to ensure they are reasonable, but it is wrong that intermediaries and the borrowers who complete deals should fund those that don’t.

Unfortunately, this situation is unlikely to change under the regulatory regimes that are on their way. Neither the revised Consumer Credit Act, due to come into force next May, nor the Consumer Credit Directive, now being debated by the European Union, tackles the situation of advisers whose business it is to make sure consumers get the best deals available in the market.

Lenders price for risk and clients who are more likely to default are charged more than those with perfect credit records. Brokers also need to be able to charge fair fees for their services so they can lower the costs and improve the services they offer to successful borrowers who present the least risk.

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