David Prosser: Rates rise as advice hits a new low

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The Independent Online

Just what is so difficult about giving customers decent advice on mortgages? The Financial Services Authority (FSA), the chief City regulator, this week warned that just a third of companies selling home loans could show they gave borrowers "suitable advice".

This isn't the first time the FSA has warned about the poor standards of advice in the mortgage industry. In December, it warned of widespread failings in the sale of interest-only mortgages.

The watchdog also has an ongoing investigation into the sale of payment protection insurance, often sold alongside mortgages, which is far too often over-priced and not suitable for customers.

What really gets my goat about these lenders is their stupidity. That they're run by people short of a brain cell or two is the first explanation that comes to mind for their repeated failures to comply with basic consumer protection rules.

After all, the FSA began policing sales of mortgages two years ago, so it's not as if lenders haven't had time to get used to the new rules. And if you're in a regulated business, you know that sooner or later the regulator is going to come round to check you've not been cheating.

Warning that lenders can't show that they've given suitable advice to two-thirds of borrowers is not the same as saying those customers have been wrongly advised. But it does mean we do not know whether people have ended up with duff products.

One particularly worrying FSA finding is that customers are being sold mortgages by lenders that have made no attempt to check whether they will be able to repay what they owe.

The Bank of England's surprise decision to raise interest rates on Thursday again highlighted the danger faced by people who have taken on excessive borrowing. Lenders are widely expected to pass the 0.25 base rate hike on to borrowers very quickly. And in the rising interest-rate environment of the past 12 months, there has simply been no excuse for lenders not making more stringent checks on borrowers' ability to repay home loans.

For its part, the regulator says it now intends to take enforcement action against the firms at which it has found the worst failings. We don't yet know what that action might be - it could be a quiet word in the ear of senior managers or full-blown fines, with public naming and shaming of the worst offenders.

Meanwhile, however, what about the borrowers who have potentially been the victims of poor advice. Surely their files now need investigating to establish whether they have ended up with the wrong sort of mortgage? Mortgage advisers then need to go back to basics. That lenders aren't bright enough to follow the FSA's rules is the most charitable reading of the regulator's report. It could be, of course, that advisers are deliberately flouting the rules in order to boost sales. But whether your adviser is a con man or plain stupid, do you really want him sorting out your mortgage?

* A plea for readers' help. Over the next week, Save & Spend plans to overhaul the tables of best-buy products we run in each issue to help readers find the top deals. We want the tables to be as useful as possible to readers, so I'd like to hear your suggestions for improvements.

We'll be looking at both savings and lending products, so there's scope to include any changes or new information that readers think might prove useful. E-mail me with your ideas at the address below or write to Save & Spend, The Independent, Independent House, 191 Marsh Wall, London, E14 9RS.

d.prosser@independent.co.uk

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