First we need to be clear what the Financial Services Authority says in the Mortgage Conduct of Business rulebook about ensuring that a recommended mortgage is suitable for a client.
Along with stipulating that, on the basis of the facts disclosed by customers, the product is the most suitable of those the adviser has available, in MCOB at 4.7.8 it 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 for that customer taking into account those pricing elements identified by the customer as being most important to him.”
Let’s see this in practice when applied to a single lender cascade. You choose a lender’s rate based on a sourcing system at 5.09% for a two-year fixed rate.
You score the case with an online decision in principle system and due to the client’s circumstances you are not offered 5.09% rate but 7.29%. You inform the client, the client accepts the information given and the case goes on to complete.
The problem intensifies when you consider the consequences.
The case above concerns a real client we inherited from one of our brokers after completion. Had the case been through multi-lender cascading, it would have fitted a two-year fixed rate of 5.79% and with lower fees.
If you look at the interest payments and fee saving, this client would have ended up £5,120 better off than with their single lender cascading deal. Unfortunately, the redemption penalty was so high that a remortgage was not advisable.
The client is seeking compensation through the adviser who recommended the original scheme.
Some cynics will see some self-preservation in the point I’m about to make, but there has never been a better time to promote the much maligned role of mortgage packagers. If a packager has a big enough panel it will multi-lender cascade.
We all know the sub-prime market contains some clients who will be happy to jump on the next mis-selling bandwagon. If you can’t show a suitable audit trail you are leaving yourself wide open.
I’m sure most brokers do their jobs properly and can show they are treating customers fairly. But like virtually everything else in life, I suspect it will be the few who spoil it for the ethical many.