How will Commercial Mortgage Brokers React to New Rules?

Companies will no longer be able to offer customers mortgage suggestions about a non-advised basis under proposals in the Mortgage Market Review. And whilst the activities of commercial mortgage brokers are not currently regulated it could have a knock on effect.

The FSA says it felt borrowers could not make the main difference between what was advised and non-advised and therefore proposes to get rid of the non-advised sales process and instead require that mortgages are sold either on an advised basis or, in the limited circumstances on an execution-only basis.

The FSA proposes however to permit high net worth people and mortgage professionals to opt-out of receiving advice and to be able to buy a product on an execution-only basis, irrespective of whether the sale involves some form of interactive discussion with an intermediary.

Consumers can also ask for execution-only, however they must know precisely what they want to buy. With regards to a home loan, the FSA expect the consumer to know, and to be able to supply the intermediary with information about the product they want, including:

  • The Lender’s name
  • The rate and type of interest product, including length of term.
  • The price or value of the property
  • Whether they want an interest-only or a repayment mortgage

Customers who the FSA class as vulnerable, such as people looking for right to buy, equity release, sale and rent back, and those consolidating debt will not be able to opt out of advice. The only exception being sale and rent back customers who can reject the advice being offered.

The FSA’s consultation is open until March 2012 with the final rules expected to be in place in the summer of 2012. Brokers who are not currently qualified would have until 2013 to implement the rules. However the timescale could be moved depending on the state of the UK and Eurozone economies.

All of the above are contained in the FSA’s Mortgage Market Review which is a long awaited shake up of how mortgage lenders interact with their existing and potential customers. There is a potential negative impact for property developers and commercial customers as although these products specifically will not be regulated it is hard to see how many commercial mortgage brokers will remain in business.

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