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.”