Excluding home reversion products, buy-to-let and business loans from the FSA's mortgage regulation ...
Excluding home reversion products, buy-to-let and business loans from the FSA's mortgage regulation remit will be to the detriment of consumers, say IFAs.
Details of the FSA's mortgage consultation - CP146 - published yesterday suggest only products which tend to affect the individual's wealth will fall under the regulatory body's jurisdiction.
Products such as home reversion loans are often considered alongside lifetime mortgages or equity release schemes, which have been given high risk status, yet they needed to be regulated too, says Ray Boulger, senior technical manager at Charcol mortgage advisers, or non-regulated advisers will be able to sell products which are unsuitable for some clients.
"The FSA has pointed out that equity release plans needed to be regulated, but rejected home reversion loans on the basis that they are not mortgages," says Boulger.
"That is true, but there are advisers who could create problems for clients because cannot get regulated and still be able to cold-call or doorstep potential clients when there may be better products for the borrower."
Boulger points out there could be similar problems with second charge loans, which are unregulated and tend to be secured loans, but could cost the client must more than is necessary because they will not told about the regulated products.
Significant FSA focus will be placed on the advice and information given to clients using equity release or lifetime mortgages once mortgage regulations come into force in 2004 because the FSA believes, like investments, they could cause an individual to lose the entire value of that invested and can be just as complex.
However, the FSA has been praised from retracting plans to impose a cooling off period on mortgages.
Boulger says some lenders dealing with flexible mortgages, for example, have lost out financially where a minor admin change has to be made at the last minute.
"They have backtracked on proposals in CP98 to introduce cooling off periods. We felt this would be detrimental to lenders as every time a minor administration charge is made during the cooling off period, the entire period has to start again," adds Boulger.
Definition of what constitutes a mortgage is set by the Treasury, rather than the FSA, so any decision to include additional products under the FSA's mortgage remit would mean changes to mortgage legislation.
Further articles explaining the FSA's thoughts on mortgage regulation to follow...
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