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Thursday, September 16, 1999 Published at 20:49 GMT 21:49 UK

Business: Your Money

Mortgage advice is 'unreliable'

Survey finds mortgage advice is often not right for the buyer

More than 30% of mortgage brokers are giving their customers the wrong advice and putting their financial position at risk, according to an undercover survey by trading standards officers.

Officers from the Local Authorities Co-ordinating Body on Food and Trading Standards and the Institute of Trading Standards Administration posed as customers to investigate the advice given by 166 sales people at estate agents, life insurers and solicitors.

They secretly recorded what the brokers said to check they were selling mortgages properly.

The investigators uncovered widespread abuse of the brokers' own voluntary code of conduct, the Mortgage Code. More than a third gave inadequate advice and nearly three-quarters failed to inform clients of their rights.


One undercover trading standards officer was interviewed for just seven minutes before being offered a mortgage. Under the Mortgage Code, sales people are supposed to need at least half an hour to gather enough information for a proper sale.

Two-thirds of the brokers failed to tell customers about their rights to complain if they were sold the wrong mortgage.

Sir Jeremy Beecham, chair of the Local Government Association, which co-ordinated the survey, said: "Buying a house is one of the most important decisions one can make and it is appalling that people apparently cannot always trust professional financial advice.

"It is clear from this survey that the current voluntary code is inadequate. With the recent pension mis-selling scandal, the public clearly need stronger regulation of financial services including mortgages and we are calling on ministers to tighten up the statutory controls."

In contrast to pensions and life insurance, the sale of mortgages has never been regulated in the UK. Mortgage brokers need no qualifications and are not always trained to give advice on the loans they sell.

While the voluntary Mortgage Code allows unlimited fines and discipline for breaches, no fines have ever been imposed.


The trading standards officers want the sale of mortgages to be brought under statutory control. They are calling for the City's financial regulator, the Financial Services Authority, to be put in charge of monitoring sales.

Industry observers say the Treasury is now increasingly likely to order this.

Ministers have already included a reserve power to regulate mortgages among their reforms of financial services, now going through Parliament in the Financial Services and Markets Bill.

If there's further evidence of bad practice in the selling of mortgages, this power is likely to be acted upon. Mortgage sellers would be required to be trained and competent, and to justify their advice to customers.

Endowments scam

Ministers are also aware of allegations of widespread mis-selling of endowment mortgages. These differ from repayment mortgages in that customers pay only interest on the loan, relying on a separate endowment policy to repay the capital when the mortgage term expires.

Mortgage brokers, who commonly work for estate agents or life insurers, receive a nominal fee of up to 200 for selling a repayment mortgage. But the typical commission for selling an endowment policy is upwards of 1,000.

This money usually comes out of the customer's endowment payments at the start of the contract, so endowments take a number of years to break even for a customer.

Typically, for the first three years customers will accumulate much less in their endowment policy than they put into it.

The report urges the the Council of Mortgage Lenders and the Mortgage Code Register of Intermediaries (or MCRI, which runs the Mortgage Code) to examine alternative ways of raising industry standards as a "priority".

Next month, the MCRI is due to publish the results of its own, much larger, undercover survey.

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