Mortgage advisers offering inadequate advice
An undercover investigation has found that just four in 50 mortgage advisers are doing their jobs properly, with the remainder offering inadequate advice to buyers.
The investigation, by Which?, used four researchers posing as first-time buyers and seeking advice from 24 banks, 13 estate agents and 13 independent mortgage brokers. It found that the vast majority of firms failed to give what it considered to be acceptable advice such as explaining the different deals available and repayment methods.
The results of the Which? mortgage test come as the Financial Services Authority (FSA) fines a firm £35,000 for failing to give suitable advice to hundreds of mortgage customers. The firm, PMSG Insurance Services, failed to take into account customers’ personal circumstances such as their affordability.
Jonathan Phelan, head of retail enforcement at the FSA, says: “It is unacceptable that PMSG exposed at least 620 customers to the risk of being recommended mortgages that they could not afford or did not need.”
The findings also come amid growing concern about the level of mortgage fraud among brokers, as the credit crunch increases the pressure on firms to make money.
Which? mortgage test
The details of the Which? investigation are shocking, with many advisers failing to check that the researchers could even afford to pay back the money they were seeking to borrow.
Of the four firms that gave acceptable advice, three were independent mortgage brokers and one was from Alliance & Leicester.
Which? names two firms that offered “extremely poor practice” – Countrywide estate agency and Lloyds TSB.
It claims that both these firms refused to give any advice or recommendations without first carrying out a credit check, a practice that could count against borrowers on their credit records. It has now reported both the firms to the FSA.
Lloyds TSB says this approach reflects its interpretation of FSA rules and guidance.
A spokeswoman says: “If a customer is shopping around and wants to compare our rates and products without advice, then we can provide an illustration without a credit score. If the customer wants advice then we must check that the mortgage is affordable prior to providing our recommendation. We do this by credit scoring the customer and we make them aware that we are doing so.”
Countrywide declined to comment on the report.
Another concern noted in the report is the fact that two-thirds of the advisers in the investigation tried to sell insurance alongside a mortgage. In one instance, Which? says an adviser from an unnamed bank seemed to put more gusto into selling insurance than the mortgage.
The report concludes that people seeking mortgage advice should in the first instance see an independent mortgage broker.
Chris Cummings, director general of trade body the Association of Mortgage Intermediaries, says borrowers should always remember the distinction between advice and sales.
“Consumers must be made aware what they are receiving,” he adds. “Independent mortgage advisers provide advice that is wholly focused on the individual consumer’s needs.
“In contrast, banks and building societies may offer only generic information. During difficult periods in the market, consumers need advice more than ever.”
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.