The Power Hour
affordability. I don’t see anything in here that changes where the FSA is coming from or that takes it further. MS: Article 17 discusses the definition of advice in the directive and it runs slightly against that in the UK. In Britain advice is the recommendation of the most suitable product whereas in the directive it is the recommendation of suitable products, plural. In the CML response to the FSA’s
consultation paper on responsible lending we argued that by having non-advised sales run through the same process as advised sales the FSA was creating an advised market in all but name, the only difference being the number of products the customer had to choose from at the end of that process. Under the directive this understanding
of advice is broader and would mean the UK changing its definition of advice to include what we currently understand as non-advised potentially.
THe direcTive says a “sufficienTly large number of ProducTs musT be considered and advice be given in line WiTH THe Profile of THe borroWer”. HoW Will THis fiT WiTH non-advised and Tied advised sales? JC: Obviously it would create problems for tied advisers. If you’re linked to a single provider how are you supposed to consider other providers’options? The same applies to considering second charges and further advances. The question is whether an adviser should be allowed to consider one without the other – my own feeling would be no. AM: Intermediaries want a level playing field. In my opinion everyone going out to get a mortgage should be getting advice. As it stands there are still customers walking out of branches having been sold a mortgage who think they’ve had advice. Anything that clarifies that dynamic is a good thing. RS: The clarity of thought that says there should be advice across the whole of the market is where we thought the FSA
42 mortgage introducer MAY 2011
might get to but actually backed away from. But I can understand that some parts of the market might not want to go through the fully advised process because of the associated transactional costs. What this directive will do is force
anyone wanting to badge themselves an adviser to look at what is best for the customer across the whole market. That’s surely common sense. That will avoid the masquerade of non-advised as advice.
Offering them the least bad option because the best option is available through another lender isn’t advice. MS: This comes back to consumer responsibility and choice. If the consumer goes to a bank they know they’re not accessing the whole of the market. AM: They may know they won’t get a NatWest mortgage from a Halifax branch but they don’t know they may not get the best product from that NatWest if the product simply isn’t available.
Execution-only sales should be possible but should be labelled as such. MS: Across Europe there tends to be an execution-only or at best a non-advised process so the directive has been written with our continental cousins in mind rather than the UK where lenders can give restricted advice. The directive doesn’t allow for this subtlety of definition. RS: Methinks the emperor has no clothes. Banks seem quite happy to hide behind the definition of restricted advice in order to tell the customer what products they should take but they’re not actually prepared to go out and look at the whole of market to find out what the best product is for that consumer. Intermediaries have to go out and look to make that judgement. Banks want to do advice but not properly. AM: I agree. There’s no middle ground here – either you give advice or you don’t.
lenders Will be required To refuse crediT To a borroWer if THe resulTs of a crediTWorTHiness assessmenT are negaTive. if one lender Turns a borroWer doWn WHere anoTHer accePTs, WHo Will judge WHicH lender is rigHT and HoW Will THis increase comPeTiTion? RS: This is messy. Just because one lender’s credit criteria are different from another’s doesn’t make one right and one wrong. It comes back to what the criteria are that make up a credit decision and what a mortgage product is. We have to keep these separate. A product is rate over a period of time. Pricing that product comes down to risk and the credit assessment. MS: Where the regulator lands on which lender is closer to “right” will have an impact. With the MMR burden of responsibility falling on the lender we’re likely to see this type of scenario adding to the pressure to do very conservative lending in the mainstream with heavy risk aversion and lenders picking and choosing what they do outside of that. RB: The main aim of this directive is to increase competition but this proposal is at odds with that. If it comes in as stated it will reduce competition. Different lenders have different risk appetites and so charge different rates to the customer. If a borrower is declined for a prime rate by one lender it may be perfectly reasonable for them to be accepted by another lender that charges them 1% more.
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