Money: Time to get tough on mortgages

Mortgages are the most bewildering financial product of the lot. Once you sit down with a "mortgage adviser" who wears a cheerful grin it's possible to be so bamboozled by choice and jargon that you forget you only came in for a loan to buy a house.

I count 146 mortgage lenders in the latest edition of Moneyfacts, the industry guide to facts and figures. Yet going through more than one interview is an ordeal: an extremely thorough friend buying for the first time saw five high street lenders. By the end she was exhausted and signed up for first offer she'd had. It may not have been the best deal ever, but she had had enough ear-bashing and intensive sales tactics. I was proud to hear she had stifled all discussion about interest-only mortgages and the inevitable e-word that follows. Our friendship has not been in vain.

But why should people have to mug up beforehand in order to avoid the many pitfalls of the mortgage world? Those who don't fit the lenders' neat pigeonholes - because they have debts in the past, unusual working patterns, or are self-employed - are still exploited by some very shoddy deals. Without being an expert in small print there's simply no way to know whether what you are being offered is the deal of the decade - or a rip off.

You will also be told about a range of fancy toppings to go with your loan. These are the real money-spinners for the dedicated mortgage adviser: home insurances, "peace of mind" deals designed to pay the mortgage if you fall ill, and overpriced life insurance policies.

The lenders and brokers get away with it because the mortgage industry is only "regulated" (in the loosest sense) by a voluntary code of practice, The Mortgage Code. This is due to an anomaly - a mortgage isn't an investment, so it doesn't come under the existing financial protection system.

The lenders bleat that they are putting their house in order and don't need external orders imposed from above. They give the usual excuses of threatened commercial interests: extra cost and bureaucracy. Their credibility is somewhat undermined by the fact that it took them until last year to get the Mortgage Code fully up and running.

Last week, the end of this cosy state of affairs came a step closer. The joint committee looking into the new Financial Services and Markets Bill (which will formally set in stone the powers of the single regulator, the Financial Services Authority) made its recommendations for changes to the FSA's powers.

And mortgages were right up there. The committee wants "a decision in principle to be taken now to bring mortgage advice within the scope of the FSA". You don't get a parliamentary committee being much more decisive than that.

In making the recommendation, the committee took on board advice from the FSA's panel of consumers, which had urged the regulator to cover mortgages because they are "bewildering and complex". It also stated: "A voluntary body is unlikely to be able to take effective action against large companies who are non-compliant."

All this will cost money. But that's a good thing. There are far too many shoddy, sharkish mortgage advisers out there, especially in mortgage broking firms.

Voluntary regulation has started to weed them out but the extra costs (and the prying eyes) involved in statutory regulation will drive the worst of them out of business.