M-Day army is fighting on the home loan front

If your mortgage adviser isn't authorised before today's deadline, you're in trouble
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The Independent Online

The biggest-ever shake-up of the UK mortgage industry happens today. But you won't feel the full effect of the changes until you apply for a home loan, because existing mortgages aren't affected.

The biggest-ever shake-up of the UK mortgage industry happens today. But you won't feel the full effect of the changes until you apply for a home loan, because existing mortgages aren't affected.

The main difference M-Day will make is that you'll get a lot more information when you apply for a mortgage. Every mortgage lender must supply potential borrowers with a "key features illustration" (KFI), spelling out how much the home loan will cost you. It also tells you what you'll pay when a special offer comes to an end and how much you could pay if interest rates rise.

This document will enable you to compare mortgage deals, increasing your chances of getting the best home loan for your circumstances.

As well as the KFI, if you use an adviser - which you should, if you want to find the best deal - you will receive an "initial disclosure document". This tells you everything you need to know about the adviser, including whether the firm offers just its own products, a select few or products drawn from across the whole market. Opt for a firm that has access to at least 20 to 30 lenders (the more the better). Otherwise, you limit your chances of finding the most competitive rate.

You will also be told whether the intermediary is authorised to give advice (some aren't), what fees are payable and under what circumstances refunds will be paid. You will be told what to do if you have a complaint and whether the mortgage is covered by the Financial Services Compensation Scheme.

This will mean a lot of paperwork. Given that many borrowers get bored reading a page or two of information about their mortgage under the current system, you're not likely to be thrilled to be handed a wad of documents. But John Tiner, chief executive of the Financial Services Authority (FSA), the City watchdog - which takes over the regulation of the mortgage industry from tomorrow - insists this is the cost of transparency.

Overall, the changes are a positive step, although they may lead to increased costs for consumers because advisers have invested heavily in new computer systems and will have to devote more time to handling your application.

But under the new regime, if things go wrong, consumers will be better protected and find it easier to pursue a dispute with a broker or lender.

Although hundreds of advisers are rumoured not to have achieved authorisation yet, this is not through lack of notice. The FSA announced nearly five years ago that it would be replacing the current voluntary code, administered by the Mortgage Code Compliance Board (MCCB).

While the MCCB has done a reasonable job, it hasn't actually deregistered an individual or company for misselling - ever. Now, this may reflect our excellent mortgage industry or it may suggest that the MCCB is toothless. Whichever, the FSA is set to be much tougher.

But despite the positives there are glaring omissions in the new system. All existing mortgages and buy-to-let loans are totally excluded from the new regulations, as are commercial mortgages and second-charge mortgages (secured loans where you lose your home if you don't keep up these repayments as well as those on your mortgage). The FSA will probably bring these under its wing eventually, but meanwhile, those advisers who don't gain authorisation are likely to offer mortgages that don't fall under the watchdog's remit. There should be plenty to keep them busy too, particularly with buy-to-let, which has seen significant growth in the past two years.

When you take out your next mortgage, ensure the adviser is authorised by the FSA - particularly if you are opting for buy-to-let or any deal that doesn't come under the FSA's remit. Make sure you protect yourself.

If you are in the middle of a mortgage application and your adviser is authorised, there is nothing to worry about. But if your adviser isn't authorised before today's deadline, you could be in trouble. The FSA can take out an injunction to stop unauthorised advisers trading, leaving you to start the process again from scratch.

This could mean you lose fees you've paid and even the property you've set your heart on: a very painful wake-up call to the realities of regulation.

m.bien@independent.co.uk

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