FSA calls for clearer advice from mortgage providers

People taking out mortgages should be able to get clear information on the products available that can be easily compared, under proposals by the Financial Services Authority.

Sarah Wilson, director of the high street companies division at the FSA, said: "For many consumers, taking out a mortgage is one of the most significant financial commitments they will make in their lifetime. We want to make sure consumers get clear comparable information and that where they get advice they are recommended a suitable mortgage."

The FSA has begun a three-month consultation period on regulation of the mortgage market, which is expected to come under its control in mid-2004. The financial watchdog is acting on a request from the Treasury, which in December announced plans to regulate both mortgage and general insurance advice. Until now, mortgage companies have complied with a voluntary code of practice. Banks, building societies, specialist lenders and mortgage intermediaries – of which there are around 10,000 in the UK – will have to be authorised by the FSA.

Under the proposals, groups giving advice on a mortgage will be required to consider its affordability and look at which deal best meets the consumer's needs and circumstances.

Product information will have to be presented in a standard format. Brokers will have to ensure consumers are treated more fairly, by ending any unscrupulous sales practices and excessive charges.

Some companies will be allowed to provide an information only service, but will have to ask customers a series of carefully scripted questions.

Consumers buying some types of higher risk mortgages, such as equity release for older people, will receive extra protection. But not all mortgage contracts will come under the FSA's remit. The contract must be the first legal charge on the borrower's property, so second mortgages will not be covered. Buy-to-let arrangements also escape because they are deemed to be a commercial investment.

Ray Boulger, a technical manager at the mortgage adviser Charcol, is concerned less qualified brokers wanting to escape the regulator's scrutiny will move to selling products that fall outside FSA definitions.

He points to the pitfalls of home reversion plans, which are not covered by the FSA. These allow people to sell their homes for a one-off price to a lender but remain living there rent-free. The house passes into the lender's possession on death.