The mortgage industry was once again put under the spotlight of the national press this week. Following the broadcast of a program on BBC Radio Four, the non-conforming market was rocked by allegations of bad practice by advisers and lenders within applicants encouraged to lie about their personal details in order to borrow more money.
File on Four interviewed a former broker who claimed that intermediaries push home owners to take out bigger loans than they can afford to pay. He claimed that his income was £25,000, but he was advised to double it on his mortgage application to give him a final loan of more than eight times his salary. As the repayments escalated, he failed to make repayments and he has since been threatened with repossession.
Disbelief and refute
Naturally these claims were met with disbelief and denial as the mortgage industry was again put under the media microscope, especially in these times of financial turmoil. In particular, this has led to further questions being raised about self-certification mortgages.
Chris Cummings, director-general of the Association of Mortgage Intermediaries (AMI), claims that self-cert is a specialist product that serves a relatively small number of consumers, accounting for less than 5 per cent of intermediary mortgage advice.
However, Cummings comments: “We do not condone any brokers who encourage consumers to make fraudulent applications. As a trade body we have produced guidance on self-certification products and encourage all brokers to carry out due diligence.
We welcome the action that the Financial Services Authority (FSA) has taken in the non-conforming market against a small number of individuals that have broken the law. However, the regulator’s report on the industry in July this year did not identify any significant evidence of non-conforming mortgages being sold incorrectly.
“Ultimately, there is a three-way relationship between the lender, the broker and the consumer. Each party has a responsibility for the actions they take. The lender should ultimately be lending responsibly and while some do run plausibility tests to check a consumer’s suitability this is not universal. Some lenders have failed to fully enforce their responsible lending policies in the non-conforming sector in recent years and there will be an inevitable tightening in the markets.”
So with this encouragement to the regulator from the trade body, it is important for brokers to ensure that they advise correctly and in line with FSA regulations. Alan Lakey, senior partner at Highclere Financial Services, believes it is difficult to know to what extent this permeates the market.
He is critical of those who abuse their practise, and says: “People who cut corners and exaggerate just because they can get away with it is a fundamental problem in any market. One has to be far more cautious and make a valued judgement. However it’s important to look at this in a wider light; these types of programme tend to prove that the bad apples do indeed exist, and if you go looking, you will undoubtedly find them.”
Poorly received
Perhaps understandably, the programme was not well received by the Intermediary Mortgage Lenders Association (IMLA), who did not appreciate the insight into the mortgage and housing industry.
Peter Williams, executive director of IMLA, comments: “The BBC’s File on Four explored issues within the UK mortgage market and drew comparisons with problems in the United States, presenting a somewhat sensational and alarmist view of the current and future state of the mortgage and housing markets.
“While acknowledging that there are some problems, we would refute the suggestion that these practices are commonplace in either the self-cert or buy-to-let markets. Across the sector, sound underwriting procedures are applied in accordance with best practice and the regulatory principles of the FSA, including the obligation to treat customers fairly. Indeed, we would take issue with the suggestion from Mick McAteer that regulation in this country is ‘very weak’.”
Williams does not disclaim the need for self-certification mortgages and claims they have a vital role in assisting customers who may not have a regular income from one single employer to obtain a mortgage, regardless of their employment status.
He adds: “The intermediary based lender sector remains committed to continuing to help legitimate customers use the self-cert range of products when appropriate, and will work with the FSA, AMI and other interested parties to ensure that the highest standards are maintained in this sector of the mortgage industry.”
Despite the impact of the programme, it is unlikely that the mortgage industry is going to be incredibly damaged by the claims of File on Four. Although the problem of members of the public hearing such negativity about the mortgage industry is bad publicity – many in the industry may be breathing a weary sigh at another exposé of the small proportion of ‘cowboy’ brokers that ruin an otherwise improving reputation – there is opportunity for brokers to once again exercise best practice, and ensure that their standing with existing and new clients is what carries them forward once again.
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