The vast majority of mortgage contracts are now regulated by the Financial Services Authority (FSA), and mortgage advisers have to be registered with the FSA in order to give advice. The FSA's rules also lay down specific requirements about the information an adviser has to give a homebuyer about the costs and features of their home loan.
But as a recent FSA "mystery shopper" survey found, not all advisers are keeping to the rules. To make matters more complicated still, consumers risk being baffled by the different types of advisers who are allowed to arrange mortgages. And here, the FSA's own rules are adding to the confusion.
The FSA's mystery shopping report should sound alarm bells to anyone who is in the market for a mortgage. The survey of 82 lenders and brokers found that 55 per cent failed to provide one of two key documents, known as the Initial Disclosure Document (IDD) and the Key Facts Illustration (KFI) within the required time frame. Almost a fifth of advisers provided neither document.
These documents are not arcane pieces of paperwork, but show exactly how much a mortgage costs, the fees that are involved and what commission, if any, the adviser stands to earn. The documents are meant to increase transparency in the mortgage market, and to help consumers make an informed choice.
Some mortgage brokers argue that with thousands of mortgage products on the market, providing the paperwork is a burden and lengthens mortgage interviews. Despite this claim, the FSA's survey found little difference in the length of interviews between the advisers that did, and those that did not, follow the rules.
If mortgage lenders and advisers do not give borrowers these reports, it is harder to compare the deals on offer - and to check whether an attractive commission is influencing the adviser's recommendations.
But some industry insiders claim that the way the FSA classifies mortgage advisers does little to help.
Under regulations introduced last October, a mortgage adviser is considered "independent" if they offer the option of fee-based advice, and pass on any commission from the mortgage lender to the borrower. The rules do not, though, require the adviser to offer loans from every mortgage lender available. A representative panel, as long as the adviser keeps the panel up to date, is sufficient.
Richard Brown, the CEO of the financial website Moneynet, believes that regardless of whether a broker charges a fee it is hard to see them as truly independent unless they source their loans from the whole market. "The FSA allows advisers to offer loans from a panel, as long as it is 'representative' of the whole of the market," he says. "But in the regulations, there is no set proportion of lenders you need in order to be representative."
The danger is that although relatively small panels of mortgage lenders will suit most mainstream homebuyers, the panel approach will prevent some borrowers from finding the best possible deals. Most mortgages come from a small number of high-street lenders but there are numerous smaller and more specialist lenders whose mortgages will suit some buyers better.
According to Ian Giles, the marketing director at online mortgage broker Purely Mortgages, one problem is that offering access to the whole mortgage market is expensive and time-consuming. This led the broker to introduce a flat fee of £195 earlier this year.
But the fact that Purely Mortgages does not rebate lenders' commissions to the homebuyer means that under the FSA rules the company cannot call itself an independent broker, even though it is not owned by any lender and offers loans from more sources than many companies that can use the independent label.
The FSA says the regulations provide protection. But just as a buyer will want to see every nook and cranny of a house, they should also ask their mortgage adviser searching questions about how they operate.Reuse content