Advisers and networks have to be able to justify that the fee they charge borrowers is proportionate.
Networks have condemned the “unacceptable” fees some advisers are charging vulnerable borrowers using a first charge remortgage to consolidate their debts.
In a recent review of a small number of firms offering first charge mortgage advice the Financial Conduct authority found evidence that some were charging borrowers in financial distress fees ranging from £127 up to a whopping £4,995.
Mark Graves, sales director at Sesame, said the findings showed that “something is clearly wrong”.
He said: “The size of some of these fees is clearly unacceptable. Advisers and networks have to be able to justify that the fee they charge borrowers is proportionate to the amount of work they do on a case and not just the size of the loan.
“We have an obligation to protect people who cannot manage their debts – and the likelihood is that they will be more vulnerable and less likely to understand these fees.”
Paul Shearman, mortgage, protection and GI proposition director at Openwork, agreed, saying: “Clearly the examples cited demonstrate a complete failure to focus on client outcomes.
“The onus is on the adviser to understand the client’s full financial position in detail.
“The Mortgage Market Review highlighted the issue of debt consolidation and it has been on the FCA radar for some time now – it shouldn’t be a surprise to see them increase their focus on this area.”
The FCA’s review found that none of the files investigated had a clear reason for why the debt consolidation product recommended was the most appropriate and “many” of the files were missing evidence that the adviser had researched other options for the borrower.
In nearly every case, the regulator said the client could afford to repay all debt payments without debt consolidation and repayment would have been more affordable after rescheduling the existing mortgage to a lower interest rate and lower monthly payments.
The six firms investigated are believed to have been specifically targeted by the regulator following concerns that unsuitable advice was being given.
Graves said that while “the small size of the sample of firms investigated” suggested that the findings were not an “accurate reflection of the genuinely higher standards we now have in this market” he warned: “It only takes a small minority of poor quality advisers to tarnish the reputation of the entire industry.”
Bank of England figures released today showed consumer credit increased by £1.9bn in March 2016.
The figures showed an annualised increase of 9.7%, the highest since December 2005.
Peter Tutton, head of policy at StepChange Debt Charity, said: “The last time consumer credit increased at this rate was in the lead-up to the recession, when credit was widely available and many households became seriously indebted.
“Creditors must ensure they carry out thorough affordability checks and lend responsibly to ensure that the mistakes made back then are not repeated.”
Kevin Purvey, chairman of IMLA, said:“Total house purchase lending remaining more or less stable in March, with approvals dipping just slightly from February as the short-term effect of the BTL stamp duty surcharge fades away.
"Remortgaging, however, rose slightly over the average established over the previous six months. Having seen the remortgage market bounce back during summer and autumn of 2015, it’s a positive sign to see it remaining in rude health in the first quarter of 2016. This is likely to be influenced by intense competition among mortgage lenders, which has driven mortgage rates down to record lows.
"Following house price rises, it means now could be a sensible time to consider remortgaging whether simply to refinance or release equity. We expect remortgaging to be one of the strongest growth areas within the mortgage market this year, with homeowners looking to remortgage benefitting very much from lender competition and the plethora of products available.”
