In-house mortgage brokers situated in estate agents’ shops are nothing new. It has always made sense for customers to be able to get mortgage advice at the same time as looking for a property but it is not – and by no means should be – obligatory.
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But it seems that a rogue band of estate agents have been telling their customers just that; that it is compulsory for house-hunters to see an in-house adviser before they can proceed in the buying process. The Mortgage Introducer postbag is full of letters from brokers whose clients have been coerced in this way, despite already obtaining independent advice and, in some cases, decisions-in-principle.
Corporate tricks?
Broker James Town of Mortgage Decisions wrote to the magazine explaining how he recently obtained a decision-in-principle for one of his clients. But on visiting the office of a corporate estate agency, even after they were informed of the decision-in-principle, the client was told that it was still necessary for her to see its in-house mortgage adviser. The reason given was so that the estate agent could ‘monitor the buying process’. The client feared losing the property she was purchasing and let the agent’s adviser complete the deal. Town raises the question of whether the estate agent’s actions were in the spirit of ‘Treating Customers Fairly’ or indeed were they ethical?
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“I write as the former owner of an estate agency and know full well the tricks that some of the corporate agents get up to,” says Town. “In many instances potential purchasers are not allowed to view a property until they have seen the agent’s mortgage adviser. Certain agents using this practice have been warned in the past by the Office of Fair Trading (OFT).”
It is a similar story from James Roberts, a mortgage adviser at Ashley Adams estate agents. He began to arrange mortgage and protection products for a young couple buying their first home. However, when the couple found the house they wanted to buy through another estate agent, the rival estate agent insisted the buyers meet its own mortgage adviser.
Roberts says: “I phoned the agent, asking details about the property as I was arranging the mortgage, only to be told that the sale could not be agreed until the clients had met with their adviser. I confirmed the clients were good for their offer and could provide proof, and also that they wanted to come in to sign their paperwork, and they didn’t want to see the agent’s adviser. The response? The sale had not been agreed, would not be agreed until their adviser said so, and I could not complete the mortgage application.”
Eventually pressure from the estate agent forced the couple to go with the agent’s broker and Roberts lost the customer. He complained to the agent and lender and received a reply saying it was their duty to the vendor to establish to their satisfaction that the purchaser is in a position to proceed to exchanging contracts.
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“Just to clarify, I don’t have it in for all estate agents,” says Roberts. “In fact, I am a broker within a relatively small regional estate agent myself and have no problems with any other agents or their own advisers in our town – and if a client says they are good for their money and arranging their mortgage elsewhere, then so be it.”
Bullying tactics?
Whether estate agents or their colleagues should be involved in the mortgage process is not the topic for debate. What needs to be discussed is whether agents are using bullying tactics to persuade house buyers to use their adviser rather than one located elsewhere and, if this is happening, what can be done about it? Young, inexperienced buyers are particularly susceptible to this kind of practise, and rogue estate agents will have no qualms about preying on their lack of knowledge to convince them that if they do not see their in-house adviser to determine if they ‘qualify’ for a mortgage, there is no point in them viewing any properties.
“This is certainly not common practice,” says National Association of Estate Agents (NAEA) chief executive, Peter Bolton King. “Estate agents do have an obligation to check that a potential purchaser can afford to buy and often the easiest way for an agent to satisfy themselves of this is if the person has been seen by an in-house financial adviser. We do not approve of strong arm tactics, however.”
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Essentially, the practise is disapproved of by mortgage intermediaries, consumers and reputable estate agents alike and adds weight to the argument that estate agents should be regulated. But, in the absence of compulsory regulation what can be done about it? And even if estate agents were regulated, would it help eradicate the misleading of customers in this way?
James Cotton, mortgage specialist at London & Country, says: “Customers are completely free to choose who arranges their mortgage, whether it be a broker, a lender, or an estate agent. Having approached one person or company for advice, they are under no obligation to continue with them.
“However, the issue is when a customer is told that they are obliged to go down a certain route for their mortgage in order to proceed with the property purchase. This is simply not true and using this tactic can mislead customers. Many will feel they are unable to shop around for the best deal or go back to the broker they initially spoke to.”
Regulation question
As it stands at the moment, estate agents are not regulated but do have to comply with the Estate Agents Act 1979 and the Property Misdescriptions Act 1991 when they act for people who are buying or selling property. A conviction for making a false or misleading statement can lead to a fine of up to £5,000 in a Magistrates’ Court or an unlimited fine in a Crown Court. The OFT can prohibit offenders from engaging in some or all types of estate agency work. Alternatively complaints about estate agents can be handled by Trading Standards.
Under the Estate Agent Act so-called ‘preferential listing’ – when buyers are told they will be put on an open and fast-track priority or preferential service list if they take financial services, such as insurance or a mortgage, offered by the estate agent – is not permitted.
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However, with limited sanctions in place, it can be very difficult for consumers to challenge these sorts of practices when they do occur, especially when you look at the fast-moving market we are seeing at the moment; with properties flying off the shelves any hesitation on the purchaser’s part – such as taking time out to complain or question estate agents’ practises – could lose them the property.
“There is very little the broker can do apart from complain,” says Melanie Bien of intermediary firm Savills Private Finance. “It’s also worth warning the client if they come to them first. A good broker shouldn’t have too much to worry about as they will be able to source a better deal.”
Some estate agents belong to the voluntary Ombudsman for Estate Agents (OEA) Scheme. The OEA scheme is devised to address disputes between member agencies and consumers who are actual or potential buyers or sellers of residential property in the UK. Other agents belong to the NAEA which has its own complaints procedure. The NAEA has the authority to discipline members should they be found to be in breach of its rules of conduct or code of practice. If a consumer has a complaint about an agent not a member of either scheme, they are at the mercy of the firm’s own complaints department for the time being.
The good news is the government has recently outlined new legislation to improve the regulation of estate agents. As part of the Consumers, Estate Agents and Redress Bill the Department of Trade and Industry announced plans for all estate agents to belong to an independent Ombudsman with the power to award compensation to buyers and sellers. This also included a proposal to ban any agent from operating who refuses to join.
Not before time
Which? says the move is not before time. The consumer group’s research in June 2006 showed that more than eight out of 10 people think the government should set up an independent body to deal with complaints about estate agents within the next three years – 43 per cent thought this was urgent and it should be set up in the next 12 months.
Which?’s Move It campaign concentrates on the need for agents to be properly regulated. Although it supports the government’s Consumers, Estate Agents and Redress Bill it does not think it goes far enough and believes there should be full regulation of the estate agency industry, including proper training for estate agents, to prevent the widespread problems occurring in the first place.
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The NAEA has been calling for the government to introduce better regulation of estate agency for some time now, and is backed by other organisations including the Royal Institution of Chartered Surveyors (RICS), Which? and the OEA.
“I would stress, however, that we are calling for regulation with a little ‘r’,” says Bolton King. “We believe there is no need for the government to implement complicated and costly new legislation that will only serve to increase the burden of red tape. Regulation need not be difficult to deal with – in fact, the structure is already in place within the industry. The NAEA, for example, has a technical qualification that estate agents must take in order to join and all members must abide by the Association’s rules of conduct.
“UK estate agency has for a long time been plagued by the actions of a rogue minority, with both consumers and agents suffering as a result. By insisting that estate agents must be a member of an approved professional body before they are allowed to practice, the government could easily and successfully go a long way towards tackling this important issue.”
But whether regulation would stop agents mis-leading clients about their obligation to take financial services from an in-house broker is open to discussion.
“It would be hard to police,” says Bien. “Although it would be good to have strict guidelines in place so everyone knows where they stand.”
Meanwhile Cotton says it is important that borrowers are made aware of the different options open to them, but they must not be made to feel that they have to go down one route versus another. “There is nothing wrong with competition between mortgage advisers,” he says. “But it must done on a level playing field and ultimately, it must not mislead borrowers.”
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One-stop shops
Many estate agents have in-house brokers in order to offer a one-stop-shop to customers. Marc Goldberg, regional sales director at Hamptons International Estate Agents, says the Hamptons mortgage service is an excellent facility for those who wish to use it. “But it is not compulsory. A client is under no obligation to use it and this does not affect their ability to purchase a property via Hamptons International.”
On the mortgage side of the Hamptons business, technical director, Jonathon Cornell, points out that from a mortgage regulation point of view, Hamptons International Mortgages is not permitted to call Hamptons estate agency clients without their prior consent. “This has interesting data protection implications as the intermediary should not give details of the buyer to the estate agent or the seller without their prior consent,” he says.
Another issue with the ‘one-stop shop’ set up is that advisers based in estate agencies are quite often tied to particular networks or mortgage clubs and may only be able to give limited advice. An independent ‘whole of market’ broker on the other hand will be able to source products from a wider range of lenders. Yet an inexperienced buyer would not be aware of the difference.
Mis-leading customers about their obligations regarding advice is just one trick estate agents have been accused of using. In an investigation last year, the BBC’s Whistleblower programme claimed that Foxtons’ agents work closely with in-house advisers to discover exactly how much a buyer can afford – information that should be confidential. Other dodgy practises included faking signatures, lying about offers, and even putting buyers in contact with people who could provide false documents.
