FSA to ban non-advised mortgage sales

The FSA today proposes to ban non-advised mortgage sales, although all but the 'vulnerable' or those accessing higher-risk products will be able to opt-out of advice or reject it and proceed on an execution-only basis.

The regulator's latest consultation paper as part of its Mortgage Market Review (MMR) suggests all intermediaries must assess product suitability and offer advice whenever there is spoken or other 'interactive' dialogue with buyers.

However, with the exception of sale and rent back (SRB) consumers, the regulator proposed those who reject the advice they have been given may still go ahead and purchase the product they want on an execution-only basis.

Additionally, high-net-worth individuals and mortgage professionals will be allowed to opt out of advice.

'Interactive' dialogue includes face-to-face, telephone, social media or online propositions with the facility for live chats.

The FSA said it hoped to reduce consumer confusion over when they have and have not received advice. It said its previous proposals of applying the same sales standards across all sales, whether advised or not, would merely blur matters further.

Direct online sales and postal sales where there is no other interaction between consumers and lenders will also not fall under the advice requirements.

"Vulnerable" customers accessing higher-risk products, including equity release, SRB, right to buy and those consolidating debt, will not be allowed to opt out of advice. This also bars them from non-interactive sales processes, such as online or by post.

Nevertheless, the FSA said it believed consumers should retain the right to make their own choices. The FSA has decided not to make advice for first-time buyers or credit-impaired customers compulsory.

In addition, to prevent any abuse of the exemption of non-interactive sales processes from advice, the FSA has proposed a new rule expressly forbidding brokers from encouraging clients towards this route in order to circumvent advised sales standards.

Therefore, all consumers, with the exception of sale and rent back customers, will be allowed to reject the advice they have been given and proceed on an execution-only basis.

But the FSA noted that any mortgage adviser who believes a product is inappropriate, but still sells it upon the customer's insistence, will be deemed in breach of their regulatory obligations.

AMI director Robert Sinclair welcomed the proposals, saying it would provide "significant benefits" to consumers.

"Buying a house is a substantial financial undertaking and we have long argued that providing consumers with expert advice is a process that cannot be left to chance.

"The MMR's proposals will ensure many more consumers are given the support and guidance they need to make better and more informed decisions. The need to evidence income and assess committed and essential expenditure will deliver sustainable loans, together with new protections for those who are credit impaired," he said.

Sinclair added: "We are also pleased that the regulator has recognised the importance of providing a level playing field for lenders and intermediaries on the issue of qualifications and determining product suitability.

"It is important that consumers are confident that at all stages they are receiving advice from qualified staff acting in their best interests."

Hugh Wade-Jones, director of Enness Private Clients, said the removal of non-advised sales was an "important step": "The requirement that advice is mandatory in certain areas shows that the FSA recognises the position and importance of the professional mortgage intermediary.

"For our business, the non-application of the rules for high-net-worth clients is very important - the proposals are intended to limit risky lending and provide safeguards for the borrower, but not to limit the opportunities for those who understand and are equipped to take an informed risk."

The industry has until 30 March 2012 to respond to the consultation paper.

For a detailed analysis of the Mortgage Market Review, visit our sister website Mortgage Solutions