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MMR: Two KFIs could be issued if fees are rolled up

The Financial Services Authority has revealed today in its consultation paper that where fees are rolled up two Key Facts Illustrations may need to be issued.

It says an outright ban on the roll-up of fees and charges would not be in consumers’ interests.

But the roll-up of fees is a widespread practice amongst lenders and there is significant variation between lenders on the number of their consumers whose fees are rolled into the loan.

Estimates provided by five smaller lenders ranged from less than 10% to 98%, with an average across all five of 59%.

Respondents to the discussion paper were split on whether the existing disclosure requirements for the roll-up of fees and charges were adequate.

There is an existing requirement on firms to provide relevant details in the KFI, the illustration must state that mortgage payments would increase and must include details of what the mortgage advance would increase to if the fees and charges were rolled-up.

The rules also provide that a consumer who wishes to roll-up fees into the mortgage can request another illustration that shows the effect of this on the payments.

This is followed at the offer stage by a further illustration which must reflect any changes to the charges since the mortgage was applied for.

The FSA says consumers who are rolling-up their fees into their mortgage should therefore be well aware of what their increased monthly repayments would be as a result.

It says: “We think there could be value in letting the consumer make an immediate and direct comparison of the impact of rolling-up fees into the mortgage by requiring that they are presented with two KFIs, one which presents the costs with and one without the fees rolled-up.

“Also, sellers will be required to keep a record where the consumer elects to roll-up the fees.”

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  • Ancient Wisdom...is a mortgage broker in N3 16th November 2010 at 3:41 pm

    ..Sesame network Members are required to do this already for the files – and destroy another tree and environment in the process. The FSA should plant a tree for every mortgage case required to be kept on file.

    Only a total idiot would agree to pay lender fess upfront prior to completion.

    And YES, I NEVER advise clients to do this – we say overpay after completion and have the arrangement fee added to the loan.

  • Tony Joannou 16th November 2010 at 3:05 pm

    I constantly have this argument with our network. My point is that if you are sitting with a client in an office and can show on the screen several quotes great but if you still go and see clients, as I do, in their homes then to go armed with two quotes for each of the products you think might suit their needs is just stupid. I’ve had clients who couldnt make their minds up if they want interest only or repayment/ fixed or tracker so on this basis I’d have about 20 quotes for a couple of lenders to go through.

    Stupid stupid FSA. By all means amend the KFI to show the impact of fees but not two quotes. If nothing else, think of the planet and the waste of paper needed to satisfy your stupid rules.

  • john 16th November 2010 at 2:41 pm

    Has anybody that works for fsa/ on MMR ever actually sat in front of a client – this woudl suggest not. Yet another pie in the sky idea from some pen pusher on 50k pa that knows nothing about the industry he is meant to be an expert on. The old adage of “if you can’t do, teach” needs to be changed to “If you can’t advise, join the FSA and tell advisers how to do it”

    Usual nonsense from the Ivory Tower.

  • roger travis 16th November 2010 at 2:35 pm

    our network already makes us do this.

    i agree with Tim, its too much information for the client at one time.

    if the FSA think that the £5 extra per month / £1000 over the life of a mortgage, is the make or break deal for a client taking a mortgage, think they should refocus.

  • Steve Wentworth 16th November 2010 at 2:26 pm

    One MMR comment states that the consumer is bombarded with information overload, then another comment wants us to provide two KFI’s to represent one product, with different features.

    inconsistent as usual

  • Tim 16th November 2010 at 1:35 pm

    If it’s going to be compulsory to show payments with and without fees added, surely it would be easier to show these on one KFI rather than 2 separate 5/10 page documents? – or is that too easy?