Summary
A detailed account is given of the bad practices employed by many mortgage advisers. Particular attention is drawn to the practice of assuming that every customer is a first time buyer and recommending a 25 year term to everyone.

Bad Practices Uncovered By Which? Report on Mortgages

Which? visited 50 advisers of which 41 failed to provide three important pieces of information to the applicant. This information must be passed on to the customer to comply with the rules of the regulator.

The survey revealed the following:

•  Levels of service. Only 23 of the 50 applicants were told that they were being given advice and a recommendation.. Of these only 13 were informed that they had a choice between information-only and advice.

•  Initial Disclosure Document (IDD). An IDD was given to 35 of the applicants by the advisers. 30 of them explained what it meant. Even so that meant a sizeable minority failed this aspect of the test.

•  Key Facts Illustration (KFI) 34 advisers made a recommendation and gave the applicants a KFI.. 28 went through the KFI with the applicant, although not all of advisers thought it was of much value.

45 advisers told the applicants that the length of the mortgage could be varied, but of these 13 recommended a mortgage term of 25 years without determining whether it was appropriate.

Even worse, 12 advisers recommended that the mortgage should run for longer than 25 years, without telling the applicant that they could pay thousands of pounds of additional interest in the long term.

Which? found that deals and repayment methods were being recommended by many mortgage advisers assuming that the applicant was a first time buyer, rather than examining their personal situation in detail. For example, 39 of the applicants were recommended fixed rate mortgages. Although fixed rates do suit the majority of first time buyers, remarkably few of the advisers highlighted the risks of having a mortgage with a fixed rate.

The applicants did not receive reliable advice about repayment options, with many advisers recommending repayment mortgages as opposed to interest only, without discussing the pros and cons of either mortgage with them.

Extremely poor practice was encountered by the applicants when dealing with two leading providers. Three advisers representing the estate agents, Countrywide and two advisers from Lloyds TSB insisted that the applicants underwent credit checks before they would give advice or a recommendation, which is extremely bad practice.

Countrywide insisted on obtaining an agreement in principle (AIP), which requires a credit check, before proceeding. The rules of the Financial Services Authority (FSA) were wrongly cited as the reason for requiring a credit search before giving a recommendation. A large number of credit checks counts against you, so it is advisable to refrain from having a credit check until you have decided to proceed with the deal on offer.

Which? reported the two companies to the FSA, as they were distorting their rules. Their bad practices prevented consumers from shopping around to find the most suitable mortgage.

The Verdict of Which?

Most of the advisers who spoke to Which? researchers did not get the basics right. They did not even determine whether an applicant was able to afford a mortgage by carrying out an income assessment.

Sourcing the best deal for the specific circumstances of the customer must be the first priority of the adviser, but they seemed to treat that kind of service as icing on the cake.

Further details from the Which? report are available in our article entitled Which? Survey Reveals Poor Advice on Mortgages