Mortgage Menace On The Wane

Homebuyers are finding it much easier to compare mortgage products since the Financial Services Authority took the industry in hand. Hurrah for regulation!

A couple of years ago, the city watchdog, the Financial Services Authority, took over the regulation of the mortgage market. And not before time when you consider the disgraceful levels of mis-selling of endowment mortgages during the Eighties and Nineties!

Until then, lenders and mortgage intermediaries were governed by the Council of Mortgage Lenders' voluntary Mortgage Code, and that was only if they subscribed to it. Not surprisingly, when the Financial Services Authority took over mortgage regulation, it drew up its own stricter Code of Conduct and applied it to all mortgage lenders and intermediaries.

As a result, potential borrowers now get clear, standardised information, known as a Key Facts Illustration, about their proposed home loan making it much easier to check the costs and terms of the mortgage, and to compare it to other similar mortgages. Brokers who are finding a mortgage for you must also recommend one that's actually suitable for you -- a requirement intended to put the kybosh on commission-hungry sales staff who, in my view, were mostly to blame for the menace of past mis-selling problems.

The FSA has just completed a review of how the new mortgage regime is working and says the results are 'encouraging'. Their surveys show that borrowers feel more confident that they're being given the relevant information and that they can understand it, not least because the Key Facts Illustration prompts them to ask further questions that might not have occurred to them before.

Unfortunately, the FSA also found that too many of the medium and smaller mortgage intermediaries (25%) still haven't got their act together and properly standardised the relevant information forms. And it seems that fees and charges have increased since regulation, probably because firms are passing on the costs of regulation to borrowers.

Nevertheless, where lenders and intermediaries are complying with the new rules, the FSA concludes that the market is operating effectively. And, as a result more borrowers (77%) are now shopping around for their mortgages, which is no bad thing.

The remainder who only bother to approach one lender for a mortgage stand to lose thousands of pounds over the life of the loan by not comparing it with others on the market that may be cheaper. The FSA is clearly pushing the mortgage industry hard to help borrowers understand the product that they're buying, so they've only themselves to blame!

Compare mortgages using The Motley Fool's Mortgage Service