FSA mulls ending mortgage commissions

The FSA is considering an RDR-style review of the way mortgage brokers are remunerated, following concerns over commission bias.

The regulator has already hinted the mortgage industry could learn lessons from the RDR's examination of the sale of retail investment products.

Previously, the FSA has discussed considering better disclosure, and clearly defining the difference between advised and non-advised sales in the UK mortgage market, but today Dan Waters, director of retail policy and conduct risk, revealed remuneration was also being targeted.

Speaking at the FSA's mortgage conference today, Waters says: "Although our regulatory regime sets standards for brokers in respect of advice, disclosure and selling practices, we have not ventured into the territory of the structure, source, or amount of remuneration."

Currently, brokers are paid a procuration fee by the lender when a mortgage is sold, which varies between lenders and products.

However, Waters is worried some brokers are recommending products with their own remuneration at the forefront of their minds.

"There are concerns - particularly in high-risk sectors - that many unaffordable and unsuitable mortgages have been advanced by some brokers who were thinking more about their own remuneration rather than their customers' best interests," he adds.

"We're left with questions about whether we should take a firmer view on remuneration arrangements and on excessive fees for certain products."

Waters says the adviser charging model adopted for the investment market may help deliver benefits for consumers by removing commission bias, and is being strongly considered by the FSA.

john.bakie@incisivemedia.com

Have your say:

"I read your article about the FSA's thoughts on mortgage proc fees,but once again they are on the wrong track. Sharp mortgage brokers charge fees as well as proc fees and in some cases they charge excessive fees and the banning of proc fees will do nothing to stop this, it will just increase the cost to the public and make it more difficult for genuine people to continue in business." Ian Mason, IFA

"Does this person from the FSA, remember how much he paid for the advice he received for his first mortgage. Probably like most people he paid nothing and like most purchasers they either can't afford a proper fee or don't see why they should pay. So they get what the lender has to offer and no choice.

Most IFAs certainly choose the best product for the client and not the highest proc fee.

If the FSA representative is so concerned about proc fees then why doesn't he simply talk to the genuine people in the industry and put a cap on the maximum proc fee. But he must also consider the time it now takes to meet with clients, source a product revisit the client and then complete the mountain of paperwork needed." John Currill, Prosser Knowles

"At last - are we now seeing the beginning of equivalent regulation for the mortgage brokers?" Harry Katz, principal, Norwest Consultants