Melanie Bien: Halfway house leaves mortgages in a muddle

Using an adviser with 'interim authorisation' may cost you money, even heartache

It's been a week since mortgage regulation came under the remit of the Financial Services Authority (FSA) but already there is cause for concern, according to Which?

The consumer body draws attention to a "gaping hole" in the rules, resulting in a handful of advisers - whose application for authorisation has been refused - being able to continue offering mortgage advice. Which? believes this leaves consumers in a vulnerable position, and I'm inclined to agree.

Unsurprisingly, not all mortgage advisers made the grade. Some 7,676 applications were received by the FSA and 7,119 firms were checked and granted permission to conduct mortgage business from M-Day (31 October).

That leaves many advisers that, under FSA rules, aren't allowed to give advice and sell mortgages. However, the City regulator has since granted "interim authorisation" to 25 firms whose applications have been refused.

The FSA says it is only fair that they can continue trading until the period during which they have a legal right to appeal expires. This is 21 days, so these firms still have time to decide whether they want to mount a challenge.

If they decide not to appeal, they will lose their interim authorisation once the 21-day deadline has passed. The same applies if they fail to get the FSA's decision overturned.

The FSA has been brought in to regulate mortgages to avoid mis-selling and ensure consumers know where they stand, as advisers have to meet certain training and competency requirements. The new system also gives consumers access to an ombudsman if they have a dispute with their adviser that can't otherwise be resolved.

But if they use an interim authorised firm, consumers won't have the same protection. While these firms have to follow FSA rules, and borrowers still have access to the ombudsman, they won't be covered by the Financial Services Compensation Scheme (FSCS). So if they lose money as a result of poor advice, they won't qualify for compensation - as they would have done if they'd used an authorised firm.

Instead of instilling confidence in the mortgage industry, which is what FSA regulation was meant to achieve, allowing unauthorised firms to carry on trading just makes the situation even more confusing.

The FSA is letting consumers down badly. Even though interim authorised firms are supposed to tell clients that they have been refused authorisation and won't be covered by the FSCS, how likely are they to be forthcoming with this information?

You can check the FSA's website, where there is a list of the 25 firms with interim authorisation (www. fsa.gov.uk/ register), or you can call the helpline on 0845 606 1234 for clarification. But what if consumers don't get round to this or don't understand what interim authorisation means?

There are plenty of risks involved in using one of these firms. If it does get authorisation after appealing, there is nothing to worry about. But if it doesn't, it can't carry on trading, so if you're in the middle of a mortgage application, you may have to start all over again with an authorised broker. This could cost you time, money, even heartache - if your property deal falls through in the meantime.

The only way consumers can protect themselves is to ensure that the mortgage adviser they use is fully authorised. Ask the firm beforehand and check on the FSA's website or by calling the helpline. If it isn't authorised, or has interim authorisation, protect yourself and take your business elsewhere.

Goodbye ...

This is my final column for The Independent on Sunday as this is my last week at the paper. I want to thank everyone who has taken the trouble to write and tell me about their financial woes, enabling me to highlight pitfalls and warn other readers of the dangers lurking in the world of personal finance. Thanks also for all your letters of encouragement, and for keeping me on my toes by complaining when you disagreed with something I wrote.

I hope I've been able to provide some useful advice over the past five years and wish you well with your finances in the future.