The Benefits of Mortgages Being Regulated

On 31st October 2004 the Financial Services Authority (FSA) began regulating most mortgage products. You can be forgiven for feeling that this does not really affect you as a consumer. However, at Mortgage Minds, we believe that this is an important and valuable thing for you. This article is designed to highlight some of the main benefits you should be aware of now, that mortgages are regulated.

Who are the FSA?
The FSA is the independent watchdog set up by government to regulate financial services and protect your rights. One of the FSA's four main aims is to help retail consumers achieve a fair deal. The FSA works to secure protection for consumers, helping you to understand your rights and responsibilities.

By law, most financial services firms such as lenders, mortgage brokers and insurance companies must be authorised by the FSA to do business in the UK. The FSA also regulate these firms, which means they set down rules for firms to follow, and then check that they are following them. However, be careful because secured loans, personal credit and some buy to let mortgages are not covered by the FSA.

Prescribed Terms
One of the best changes that was introduced by the FSA was to help reduce the jargon used in the mortgage industry. They did this by standardising some of the industry terms and by restricting the use of some of the more confusing and misleading phrases.
One example of this is the now standard term “Early Repayment Charge”. This refers to a cash sum payable by the borrower if part or all of the mortgage is repaid before an agreed date. Before mortgages were regulated these used to be called “Redemption Fees” “Repayment Penalties”, “Tie-ins” or “Settlement fees”. The array of different terms that were used by different mortgage companies created confusion with the general public and sometimes got in the way when consumers were comparing different deals.
Another good example of this is the new term “Higher Lending Charge”. This refers to a one-off payment which some lenders ask you to make at the start of the mortgage if you want to borrow a high proportion of the property’s value. This is used to insure the lender against the risk of having to repossess your home and sell it at a loss if you do not keep up your repayments. This new term replaces the old terms “Mortgage Indemnity” “Indemnity Guarantee” and “Additional Mortgage Security”. Customers have complained that the old terms were confusing and potentially misleading.
There is also a new term for Equity Release plans. These are now called “Lifetime Mortgages”. Now that mortgages are regulated, the standard terms “Early Repayment Charge”, “Higher Lending Charge” and “Lifetime Mortgage” should help to keep choosing the right mortgage for you as easy as possible.

Keyfacts Documents

The FSA also now require firms to give you Keyfacts documents as part of their service to you. These set out the important pieces of information that you need to be aware of.

When you contact a mortgage lender or broker they will give you a document that will set out important information about the service they are offering you. You will recognise it by the black and white Keyfacts logo and the text ‘about our services’. This document, also called the ‘initial disclosure document’ (IDD), will help you understand the service the lender or broker is giving you.

You’ll also get a Keyfacts Illustration (KFI) when a mortgage lender or broker gives you personalised information about a specific mortgage. The KFI will summarise the costs and important features of the mortgage. You will recognise it by the Keyfacts sign followed by the words ‘about this mortgage’. You can use the KFI to compare mortgages from different lenders. Make sure you read the Keyfacts documents as these are there for your protection as a consumer.

Complaints and Disputes

The FSA do not deal with complaints against firms, although they do set the rules which firms should follow when dealing with complaints.
The Financial Ombudsman Service is the independent body set up by law to investigate a complaint against a firm operating in the UK when a consumer is not satisfied with the way the firm has handled it.
The Financial Services Compensation Scheme can usually pay compensation to consumers when a UK authorised firm goes out of business.

Mortgage Minds

Mortgage Minds is a division of the Mortgage Times Group Limited, 279 Tottenham Court Road, London, W1T 7RJ, which is authorised and regulated by the Financial Services Authority. The Mortgage Times Group Limited’s FSA registration number is 303007.
Our permitted business is advising on and arranging mortgages and non-investment insurance business. You can check this on the FSA's Register by visiting the FSA’s website www.fsa.gov.uk/register/ or by contacting the FSA on 0845 606 1234.

This articles was kindly submitted by our very own compliance officer Ben Lewis.