Mortgage lenders consider a code of practice

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MORTGAGE lenders are considering adopting a code of practice in an attempt to head off the threat of legislation.

The Council of Mortgage Lenders, which acts as a trade body for most lenders, is canvassing members to see whether a code would be practical and acceptable.

The Consumers' Association is keen to see the Financial Services Act extended to encompass mortgage lending. Jean Eaglesham, head of its money unit, said: 'We have doubts about whether the lenders could enforce a code. They would need tough sanctions. So many mortgages are sold with endowments. The dividing line between lending and investment is not always clear.

'There are no checks on the quality of advice given,' Ms Eaglesham added. 'We are worried that we may return to the awful deferred interest deals which caused such problems in the late 1980s. One problem is that a CML code would not cover mortgage brokers, who introduce up to half of lenders' business.'

A spokesman for the CML said: 'I don't think it's any secret that we would rather have a voluntary code than regulation.'

The code could simply require lenders to give borrowers a 'reason why' letter to explain the type of mortgage that has been recommended and the rationale for the advice. It would have to demonstrate that any linked services recommended as part of the loan package were also suitable for that customer. A wider code could include statements about the use of annual percentage rates, arrears and repossessions.

The CML would have to enforce the code and find a way of recompensing consumers who suffered through any breach.

The Office of Fair Trading encourages the use of industry codes as long as they go beyond stating the existing legal requirements.