While I know this is not a new discussion point on the agenda, there is not enough being done as an industry to stop this, almost two years into the Financial Services Authority’s (FSA) regulation of mortgages.
Can we be clear what the FSA states in its Mortgage Conduct of Business (MCOB) rulebook:
MCOB 4.7.2
A regulated mortgage contract will be suitable if, having regard to the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware, the firm has reasonable grounds to conclude that: the regulated mortgage contract is the most suitable of those that the firm has available to it within the scope of the service provided to the customer.
Along with:
MCOB 4.7.8
1) A firm should, out of all the regulated mortgage contracts identified as being appropriate for that customer, recommend the one that is the least expensive for that customer taking into account those pricing elements identified by the customer as being most important to him.
So you choose a lender’s rate based on a sourcing system at, say, a 5.09 per cent two-year fixed rate. You score the case with an online decision-in-principle (DIP) system and due to the client’s circumstances you are not offered a 5.09 per cent rate but a 7.29 per cent rate. The intermediary then tells the client, the client accepts the information given, and the case goes on to complete.
The problem intensifies when you consider that a recent intermediary client of Personal Touch Packaging actually inherited this client shortly after completion. With a multi-lender cascading the case, the client would have fitted a two-year fixed rate of only 5.79 per cent and with lower fees. If you look at the interest payments and fee saving, this client ended up £5,120 better off then their single lender cascading deal. Unfortunately for the client, the redemption penalty was so high that a remortgage could not be achieved under the principles of ‘Treating Customers Fairly’ (TCF). The client is seeking a compensation claim through the adviser who recommended the original scheme, who is likely to be duty bound to uphold the complaint and therefore pay a suitable compensation payment. If they don’t, the client has a redress to seek compensation via the Financial Ombudsman Service (FOS).
I run a large packager and accept that the cynics out there will see some self-preservation in the point I’m about to make. There has never been a better time to promote the much maligned role of a mortgage packager. If a packager has a large enough panel (and the intermediary will be the judge of that), a packager will multi-lender cascade. We give one binding decision DIP response and then another six alternative options. The broker can then compare with what the direct-to-lender cascade option gives them against the research done by the packager. I accept that there will be many cases where, by comparing the single lender cascade to the multi-lender cascade, the former option remains better value, but the point is at least the broker knows this and can be safe in the knowledge.
We are all too aware that the non-conforming market, like all groups, has a minority of clients that would be happy to jump on the next mis-selling bandwagon. If you can’t demonstrate a suitable audit trail, then you leave yourself wide open. I’m certain that the majority of intermediaries do their jobs properly and would already be able to demonstrate TCF in the systems used to compile their recommendations. But once again, like everything in life, I suspect it will be the few that spoil it for the ethical many.
Rob Jupp
Managing director
Personal Touch Packaging Limited
ASUB
