Best advice clause called for: Building societies chief challenges Carsberg's views

THE banking code could be revised to include a 'best advice' clause that would force banks and building societies to advise on the relative merits of repayment and endowment mortgages, Sir Bryan Carsberg, Director General of Fair Trading, said yesterday.

The clause could also cover advice on deposit-based savings schemes such as Tessas against insurance-based products. Sir Bryan also questioned the way that financial institutions were forced by polarisation rules either to sell the products of a single company or to give advice over a whole range. Speaking at the annual conference of the Building Societies Association in Brighton, he said: 'Some might want to be retailers of two insurance companies' products. I don't see why there shouldn't be retailers for one or two or more suppliers.'

Sir Bryan said that he would want to distinguish between those who were selling products as a retailer and those who were selling advice. 'Giving advice goes further than retailing. There is room for both. Independent financial advisers should be compared with solicitors and accountants who are selling advice for fees. That involves spending time and price should be related to time. I don't think independent financial advisers will be forced out of business.'

But his views on best advice were challenged by the BSA's new chairman, Geoffrey Lister of Bradford & Bingley Building Society. Bringing deposit- based savings into the regulations would be 'costly, bureaucratic and unnecessary. The track record of retail savings as secure, risk-free investments is clear for all to see.' Regulating mortgage business under the Financial Services Act was also completely unnecessary. 'We should bear in mind that where the repayment vehicle is an endowment, unit trust or Pep, it is already regulated by the Financial Services Act.'

Building societies may be forced to curb loans that represent a high proportion of a property's value under new guidelines being drawn up by the Building Societies Commission.

Rosalind Gilmore, the Building Societies Commissioner, told the BSA conference that extra capital would have to be set aside to back loans of more than 90 per cent, rather than 95 per cent under current guidelines.

While the Commission did not aim to stop high percentage loans, it wanted their higher risk to be identified and managed. Societies have already cut back as insurance companies have backed away from offering mortgage indemnity cover on the top slice of loans.

Mrs Gilmore said societies would also have to be more careful about a borrower's ability to pay if mortgage rates rose and recommended lenders use a minimum 10 per cent for assessments.