Someone once said: “There are lies, damn lies and statistics.” So when I’m reading through my ever-growing pile of industry reports and press cuttings, I’m looking for patterns.
One opinion is shared by many mortgage commentators: non-conforming mortgage sales are growing.
Growth
Keep delving past the headlines and it’s easy to see why.
Many national newspapers say personal debt in the UK is now over £1 trillion and the highest in Europe. The debt-to-income ratio has risen from 94 per cent in 1998 to 139 per cent in 2005 (Mintel Report, September 2006). The number of CCJs rose in 2005 for the first time in 14 years. The numbers of repossessions, individual insolvencies and bankruptcies have all gone up.
Recent increases of interest rates and some tightening of lending criteria have all helped widen the net for non-conforming business.
Protecting vulnerable consumers
The FSA is responsible for protecting customers of financial services so they receive a fair deal. Non-conforming customers have impaired financial conditions.
They are likely to be in debt and don’t know where to turn for help, which makes them potentially vulnerable. We must ensure these customers are treated fairly. As more consumers buy non-conforming products, the regulatory focus on this sector grows too.
We are about to start our follow-up project in this area to ensure the improvements we required have been made. We expect firms that advise on non-conforming mortgages to have put into practice the findings we published last year.
Where we find this is not the case, we will require firms to undertake remedial action and consider whether enforcement is appropriate.
Findings and good practice
In 2005, we checked whether non-conforming advisers gathered the right information on the needs of their customer, and made suitable recommendations. We looked for documented evidence of these practices in 31 firms and over 210 customer files.
Keep apace of developments
As mentioned, since our last review the non-conforming market has grown. There are many issues affecting the advice given for non-conforming mortgages including:
- the rise in the number of non-conforming products. Are customers receiving the most suitable product?
- the use of cascade systems by some lenders. If, as a result of the cascade, another product is offered, is this suitable for the customer or should other lenders be researched?
- early repayment charges when remortgaging. Does the customer understand what this means?
- single premium payment protection insurance (PPI). Is this more suitable for the customer compared to regular premium PPI? If so, why?
- if a customer chooses an interest only mortgage purely to reduce monthly costs and wants to repay the loan by selling the property, have you ensured they fully understand the risks involved?
Advertising
We regard enforcement of the MCOB regime as important both for consumers and for the industry.
We regularly monitor mortgage promotions, most of which target the non-conforming market. We will continue to take any necessary action to deal with the problems and update our mortgages web pages with what we’re doing.
Raising standards together
This is a growth area and we must work together to raise standards. How do advisers do that? I’ve no doubt there are as many opinions as there are non-conforming advisers.
But if all advisers work to the same principles, this vulnerable group of customers will have the confidence to return in the future.
For further information please see our web pages: www.fsa.gov.uk/smallfirms/mortgages.
