Interest-only compliance is critical


July 16, 2012

Bob Hunt is Chief Executive of Paradigm Mortgage Services


The latest figures published by the Financial Ombudsman Service show that the number of mortgage complaints increased by 9% in the second quarter of 2012.


The overall number of home loan grievances totalled 2,234 with just over a quarter of the complaints being upheld by the watchdog.


Mortgage complaints represented just 4% of all financial product gripes so one may conclude there is no need for concern however there is clear evidence of what could lie around the corner when you look at the results in other sectors.


Complaints about payment protection insurance accounted for 56% of all objections which proves how strong the consumer backlash can be once the national press get hold of a ‘scandal’ and the subsequent raft of ambulance-chasing firms materialise.


Claims management firms will already be looking for their next targets and rumours are circulating that interest-only mortgages could be in the crosshairs.


You only have to look at how far lenders’ attitudes to the products have shifted in the past five years to realise that many banks realise ‘there could be trouble ahead’.


When house prices were continuing to rise lenders were happy to give borrowers interest-only mortgages with both parties working on the assumption that property appreciation could help cover the repayments in future.


However we all know the folly of trying to second guess economic movements and the lack of repayment vehicle evidencing required in the past and the subsequent market crash has left many borrowers with huge sums to pay in capital but no discernible means of doing so.


Even if interest-only mortgages don’t develop into the next ‘scandal’ all stakeholders should take note of the fact that complaints have increased over the past quarter.


Consumers that may have been willing to overlook slight grievances when the going was good are far more likely to act on such bugbears when they are feeling the pinch and with financial redress seemingly easier to claim than ever before, lenders and brokers alike need to ensure they are on top of their game in terms of their advice and compliance procedures.


Regulatory change such as the Mortgage Market Review and the Retail Distribution Review have brought the advice process in to sharper focus across the financial services industry and it is more important than ever for intermediaries to demonstrate how and why they arrived at particular decisions.


The majority of brokers will feel they are doing this already and have been operating in the consumers’ best interests since mortgage regulation was introduced in 2004 – many in fact long before that – but with each raft of legislation comes an increased responsibility (and workload) to ensure they stay compliant.


It may feel at times that as this bureaucracy becomes more complex that it eats into the time that brokers can spend actually doing business with the odds becoming too heavily weighted in favour of the consumer. 


However the more transparent the market can become and the fewer complaints it receives, the less chance there is of the sterling work of the majority being tarnished by the actions of a few. 

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