Despite its branding lenders as being more interested in commission than customers' financial welfare, opposition parties and consumer groups attacked the OFT report's limpness and united in calling for a full inquiry and a harsher system of mortgage regulation.
Thousands of financially strapped homebuyers, including first-time buyers, are, according to the report, being wrongly sold endowment mortgages instead of the repayment variety, which could prove cheaper.
The report by Sir Bryan Carsberg, director of the OFT, stopped short of calling for statutory regulation of the mortgage industry and said it should be given the chance to put its own house in order. Despite identifying the problem areas, Sir Bryan said he would only keep the issue "under review" with tough action to follow "only if there was no improvement".
Sir Bryan's comment was attacked by the Shadow Chancellor, Gordon Brown, who said the report highlighted the Government's failure to act to help borrowers. He said Labour was considering such legislation aimed at "protecting holders of endowment mortgages".
The Liberal Democrats' trade and industry spokesman, Nick Harvey, said the conflict of interest between mortgage lenders and those setting up endowment policies was now so great that "we should think about separating them altogether".
For the Consumers' Association, the report is a vindication of years of campaigning over what it claims is misleading and inaccurate mortgage advice aimed more at advisers' profits than packages suited to consumers' finances.
The Council of Mortgage Lenders said it would be studying the report. It did not rule out a voluntary code of practice being brought in. However, legislation, according to Sir Bryan, would "take time".
The OFT report, Mortgage Repayment Methods, concludes that homebuyers with no significant savings are better off with a traditional repayment mortgage than with an endowment-linked one; 60 per cent of all new mortgages are endowment linked. Endowment mortgages, it says, could leave borrowers significantly out of pocket if they were advised to surrender policies early or borrow to keep up the repayments. House movers who surrender policies after five years can pay £8,000 more than repayment mortgagees, the report says. Borrowing on overdraft can cost an extra £3,000.
Call for better advice, page 4
Leading article, page 12
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