It was reported earlier this week1 that The Financial Conduct Authority (FCA) has fined The Royal Bank of Scotland and NatWest £14,474,600 for serious failings in their advised mortgage sales business. This amount includes a 30% discount for an ‘early stage settlement’, otherwise the fine could have been in excess of £20,000,000. This article got me thinking – what do people look for, and what do they expect when mortgage hunting? After all, as Tracey McDermott at the FCA said: “Taking out a mortgage is one of the most important financial decisions we can make. Poor advice could cost someone their home so it’s vital that the advice process is fit for purpose.”
I’ve been wondering, does everybody understand the different options that they have, and the various services that are available? I thought that it might be helpful to outline a few details below:
Range of advice options
You could go and get your ‘advice’ from your local bank, but unsurprisingly the only products offered to you will be solely from that lenders’ range . All lenders are not the same, either in the way that your application might be assessed, or in terms of products / rates / fees offered. To get an idea of what’s available you could walk down the high street and visit several banks, but this would eat up a whole lot of time.
What about the chap / lady based in your local estate agency, isn’t s/he totally independent? The answer is possibly, but don’t count on it. At your first meeting (according to FCA rules) the advisor should explain clearly both the range of mortgages that are offered, and also their charges. I know from talking to clients that sometimes this doesn’t happen (perhaps because the advisors forgotten) or the information isn’t totally clear. Some advisors are only able to use lenders from a very restricted panel (maybe just 6 or 8 providers) and often it’s the estate agency chains that have these restricted arrangements.
There are many companies that are, just like Moving Experience, not linked to a bank or to such a restricted group of lenders. At, or before, a meeting (as standard practice) we issue an ‘Initial Disclosure Document’ that explains our services and fees, and informs the customer that we offer mortgages from the intermediary mortgage market. I’ve always felt that it’s really important to be as transparent as possible, and for a client to understand our business from the outset. We work with a comprehensive range of providers, but we can’t get to every deal. It’s true that some products are only made available for lender-direct applications, but it’s equally true that independents have access to exclusive deals only available via intermediaries who are members of certain networks / clubs.
Service & Support
When you submit your mortgage application do you want to be confident that you’re working with an expert? That you fully understand the commitment that you’re undertaking? And can be confident your decision is the right one? As the application progresses, would you like to be kept up to date on a regular basis, to know what’s happening and why, and enjoy ‘jargon free’ conversations? If that’s the case then you should definitely chose to work with an advisor who you can either meet face to face, or one you can be sure that you can easily get in touch with.
As an alternative to the above, perhaps you’ll consider looking at the internet, but I’d recommend against online comparison websites. Of course I would, you may be thinking! Not only would I like everyone to get access to objective advice, preferably from Moving Experience, but also there can be service issues. You may be referred to a bank which, as is commonplace with online services, has compromised customer service in order to support cheap head line pricing – you could expect to spend more time listening to hold music than actually speaking to someone, and when you do could then discover that the cheapest figure on screen is not available to you… So it’s back to the drawing board!
The above leads us neatly on to time. How much do you have to spare? Selecting an appropriate mortgage for your needs / circumstances can be a lengthy and (should be an) in-depth process. New rules following the Mortgage Market Review (MMR) introduced in April this year mean that, along with looking at your specific loan requirements, a lot of detail needs to be recorded to understand your circumstances, needs, plans for the future, and of course your ability to make repayments. It’s a good idea to make sure you have all this information ready, and that you have sufficient time, available to discuss everything with your chosen advisor. High street bank advisors are often only available during opening hours, which (if you are in full-time employment) could mean you spend a day of your weekend in your local branch, or force you to take time off from work that could be better used for other things. It seems obvious, (but I’ll say it anyway) if you want to look at multiple different lenders this way, then you’d need to go through the interview process several times. Imagine you visit just 3 lenders, at 2 hours per meeting … that’s your whole day gone!
Don’t be fooled into thinking that comparison websites are all that much quicker either! It’s very often the case that you could be hunting for a specific type of mortgage that you’ve heard about, and / or focusing the search on finding the lowest interest rates, but this can be a case of shiny object syndrome! On the surface it initially looks appealing, but once you’ve spent an hour doing some further digging you discover that you don’t fit the lender’s criteria, and thus need to begin the search for shiny object number 2. Alternatively, people can be fooled by the maths of it all – the rate might seem really attractive, but the small print could show fees that actually mean you’ll pay more (overall) than necessary.
These two issues can be helped by using a mortgage broker / advisor, who can often be more flexible. They may be able to visit you in your home, where you can easily collate paperwork, at a time that suits you. After one meeting, the advisor should have enough information to be able to research 100’s of products on your behalf, before selecting and recommending one that best suits your needs.
Motivation of advisor
Before committing to any ‘advice path’, it’s important to think about and understand the motivation behind the person / process that you’re dealing with. Bank advisors are tasked to meet company targets, and have only restricted options, so may be forced to recommend a ‘less than perfect fit’ just to get scores on the board. Comparison websites are there to make money, so again you need to question the products promoted and why? Are you being shown a true reflection of the market, or simply looking at paid advertising? Does the website want you to ‘do it yourself’, or is there a means of collating details that a ‘lead provider’ can sell on?
I spoke to a couple recently who had received advice from an advisor based in a high street estate agency, who they were introduced to after expressing a mild interest in a property to purchase as an investment. After we’d talked for a little while, it became apparent to me that the advice they had received was not objective (as they had been led to believe) but in fact revolved solely around obtaining a mortgage that could facilitate the purchase of the particular property they’d looked at. Had they followed the suggested path, they could have (a) purchased a house that’s not terribly effective as a property for rental (b) placed their own residence at significant risk (c) potentially put their own family finances under significant pressure.
So, in summary, the questions to consider are:
- Who are you talking to?
- What exactly are they offering?
- Where do they make their money?
- Why have you chosen the bank / person / website, and is it really the best option?