Cover


is directed at ‘sellers’, in reality there is a lot in the consultation paper directed at lenders and not least branch-based lenders,” he says. As well as the need for an


appropriateness test in non-advised sales, this bias is also borne out in the need for all advisers to be qualified to the equivalent of a Qualification and Credit Framework (QCF) Level 3 standard. “It is right that all mortgage sellers, not


just advisers, will need to hold a level three mortgage qualification,” says Sinclair. “If non-advised sales are to require an assessment of affordability and appropriateness, then it is essential that those undertaking such activities are suitably qualified.” FSA research suggests on average


fewer than half of all direct sales are advised, although this has been steadily increasing – from 34% in Q2 2006 to 47% in Q2 2010.


It says there is a “considerable


proportion” of higher risk borrowers for whom “there may have been no assessment of whether the mortgage sold was appropriate for the borrower and the seller would be subject to lower standards of professionalism, both of which are key MMR concerns.” Coreco’s Andrew Montlake says


standardising adviser qualifications at Level 3 is a “no brainer” and Chris Nairn, sales director at Essex-based broker New Leaf Distribution, agrees. “Why it has taken over six years to


have a review where one outcome is to require anyone giving advice to have an appropriate qualification is simply staggering,” he says.


Kfis And idds And roLLed- up fees The third MMR paper also aims to reduce the burden of written information


assessment of appropriateness must be undertaken in every mortgage sale. If a recommendation is made, then


by Robert Sinclair, director, AMI


The guiding principle of the MMR of ensuring that all borrowers can afford their mortgage is something that we all must strongly support. However, there needs to be careful consideration of the way in which the rules are worded, as well as the consequences of applying too many of the current proposals to the mortgage market. We are encouraged that there


appears to be no rush to implement and time is being taken to consider matters carefully. This is important as we do not believe that it is possible to remove all risk from the mortgage market. The FSA has said that it considered


making advice compulsory for all mortgage sales but it wanted to retain the non-advised option to ensure consumer choice. However to address concerns, it is proposing that an


this will have to be in the “client’s best interest” rather than recommending the “most suitable” product, with a requirement to check that the consumer fits the expected parameters of the lenders affordability criteria. Consumers receiving advice should


still be the default route. AMI still thinks that for some consumer and product groups, such as first-time buyers and interest-only mortgages, receiving advice should be compulsory. The requirements that all mortgage


sellers will need to hold a level three mortgage qualification will create a more even playing field for the industry. This could also drive up costs for banks where they deliver mortgage products directly, which could lead to an increase in demand for intermediary distribution. The cumulative impact of the whole


of the MMR proposals on consumers and the mortgage industry must be assessed. We would hope to see an amalgamation of the FSA’s conclusions in a final consultation paper before any implementation takes place.


24 mortgage introducer DECEMBER 2010


on firms and on consumers who neither read nor take much notice of reams of documentation. To this end, the Initial Disclosure


Document is to be scrapped in favour of oral disclosure of remuneration (and some form of durable record of this) and the trigger points for issuing a Key Facts Illustration are to be reduced in an effort to curb information overload. It’s a laudable objective but is


contradicted by another proposal in the paper – something the FSA acknowledges. The regulator is worried that consumers don’t understand rolling up fees into the principle and so suggests brokers issue two KFIs to illustrate the cost difference of rolling up or not rolling up fees. Ray Boulger is sceptical about the


practicalities of both proposals. “I suspect getting rid of the IDD will


drive more brokers to record calls and keep records which will probably not be that cheap,” he says. “And on the rolling up of fees, if you’re not going to add the fee then where does the money come from? You still have to borrow it from somewhere else which won’t go on the KFI.” Also more in line with the common


sense approach claimed by the FSA is the proposal that brokers will have to disclose whether they will consider direct-only mortgages when advising a client but will not have to issue a KFI if they recommend a direct-only deal. AMI director, Robert Sinclair, believes


this is a further boon to the intermediary sector. “It means intermediaries will be able to


advise on direct-only deals without incurring an increased cost, which may impact on lenders thinking about dual pricing in the future,” he explains.


the bLAme gAme Despite tentative approval on much of the paper, there are still concerns that need to be ironed out. In an effort to bring the mortgage


market more into line with the retail investment market, the regulator is also proposing a change in language applied


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