So do mortgages now feel as safe as houses?

Laura Howard and Julian Knight ask if consumers are better off after three years of FSA protection

Next week will mark three years since the Financial Services Authority (FSA) started regulating the multi-billion- pound mortgage market.

A brave new world was promised where British consumers could shop around in the knowledge that they would enjoy greater protection and transparency at no extra cost. Instead, though, critics say mortgages have become more expensive and consumers are still vulnerable to poor practice.

The Council of Mortgage Lenders (CML) reckons regulation has added over £500 to the cost of purchasing a home as lenders and brokers now have to pay an annual fee to the FSA as well as meet the expense of producing Key Facts Illustrations (KFIs), which set out the main points of a mortgage to make it easier for borrowers to compare deals. And according to the financial analyst Moneyfacts, the average arrangement fee on a fixed-rate mortgage among the 10 biggest lenders is now £681.60 – against £321.40 in October 2004.

Moneyfacts spokeswoman Lisa Taylor reckons the initial hike in fees was a result of regulation. Subsequently, she says, high arrangement fees have been used as a tool to keep headline rates of interest low.

Mortgage advice is also reported to have become more costly. Richard Farr, managing director of the Association of Mortgage Intermediaries (AMI), talks of "bigger financial burdens", and Ray Boulger, technical manager at broker John Charcol, says the proportion of middlemen charging their clients a fee for advice, as well as receiving commission from the lender, has "risen considerably" since regulation.

But it's not all bad news. Which?, the consumer group, welcomes the fact that mortgage customers now have access to the Financial Ombudsman Service to help settle disputes with firms. "If standards are not found to comply with regulations, consumers have a clear complaints process," says Vera Cottrell, policy adviser at Which?.

However, she notes that Which? "mystery shopping" exercises have found little difference in the quality of service provided to mortgage customers pre and post FSA regulation.

But according to a study by the FSA itself, three-quarters of mortgage customers find KFIs very useful. Furthermore, lenders now find it harder to repossess a property. "This can now only take place if other options such as a repayment plan have been exhausted," says FSA spokesman Robin Gordon-Walker.

As for curbing dodgy activities among lenders and advisers, he thinks the FSA is making strides. "With one to two million mortgages arranged every year, a handful could get through the net. But we are always judging the effectiveness of regulation and are adaptable."

The watchdog can, at least, claim it has bared its teeth on the subject of mortgage exit fees – though even here there are criticisms. The FSA acted following complaints over the increasing amounts charged by lenders for completing the paperwork at the end of a mortgage term; in some instances, fees had trebled in just a few years. Consumer groups suggested that the fees bore no relation to the work being undertaken.

The FSA's solution was to instruct mortgage firms to cap their fees and to compensate those who had been charged over the odds in the past. However, much to the anger of consumer groups, the FSA decided it was up to consumers to contact lenders for the money.

There is also growing disquiet that lenders are hiking arrangement fees to offset lower exit charges.