The mortgage market is undergoing dramatic changes and not all brokers are keeping pace, according to the Financial Services Authority.
The FSA carried out a review of 345 mortgage broker firms and found several providing sub-standard advice. Many will now undertake reviews to rectify the failings and some have stopped all business until they make changes.
One area that was examined was the issue of self-certification mortgages. “We found some firms willing to offer mortgages they know to be unaffordable and to accept self-cert business even where they had concerns that the financial information provided by the customer was implausible,” explains the regulator.
Self-cert mortgages are available for individuals who cannot provide details on their income. The self-employed or people who have not been working for long, or who have more than one job, can have difficulty proving their income and so may opt to pay a premium in order to obtain a self-cert mortgage.
But because self-cert mortgages are often processed more quickly than standard mortgages, some brokers may have been providing them so that buyers could speed up the home-buying process.
The Council of Mortgage Lenders (CML) has welcomed the FSA’s study but says it is imperative that the FSA makes its guidelines for good and bad practice as unambiguous as possible.
Michael Coogan, CML director-general, believes the findings would provide a wake-up call for some brokers.
“Poor practice undermines the reputation of good brokers, and of the wider mortgage industry,” he says.
Peter Williams, executive director for The Intermediary Mortgage Lenders Association, says that brokers should advise those thinking of taking out a self-cert mortgage to consider how long they will need it for. If their income changes, they may want to switch back to a standard mortgage, and could get hit with penalty fees.
Landlord Mortgages, a buy-to-let mortgage broker, has also offered its own condemnation of brokers, claiming that buy-to-let investors are being misled into thinking they can expect guaranteed income from their properties.
There needs to be, it says, a clear set of guidelines for brokers published by the FSA outlining what is expected from them.
In January 2008, the FSA will begin a review of the quality of advice provided for mortgage sales.
