The mortgage industry is currently only subject to voluntary codes of practice, but as of 31 October all mortgage brokers must be compliant with new regulations overseen by the Financial Service Authority (FSA). Those who fail to be compliant will not be allowed to trade legally after that date.
Time is running out for mortgage brokers who wish to be compliant by 31 October, and the same is true for their clients, who may well find themselves without a mortgage broker part way through the house buying process. So far, less than one third of mortgage brokers in the UK have applied to the FSA for authorisation for the new rules.
Pam Burnett of UKMC says that the situation is a ticking time bomb for the mortgage industry and the house buying public: "Sadly, mortgage brokers are sticking their heads in the sand on this one. They represent one of the last professional groups to face strict compliance, yet most of them are currently doing nothing about it. They will have to move fast if they are to be compliant by 31 October and so remain in business."
Ms Burnett and her colleagues at UKMC say that it is imperative for house buyers to make sure that their mortgage broker will be compliant by 31 October, even if they are only looking at properties now.
"Buying a house is the most costly and stressful thing that a person can do," added Ms. Burnett, "and even if they are only looking now, it may well be that their mortgage discussions will not take place until later in the year. If their mortgage negotiations span that crucial end of October period and their mortgage broker is not compliant come 1 November, they will have to start the process all over again, which may mean losing both the property of their dreams and the fees they have already paid their broker."
The UKMC has some useful questions that house buyers should ask their mortgage brokers now:
· Have you applied for authorisation from the FSA?
· If you have applied, are you ready for authorisation? In other words, can you show the regulator that you can operate your business within the new rules?
· If you have not applied, you may have to cease trading after 31 October. What will happen to me as your client, and the business you are transacting for me, if this is the case?
But it is not just house buyers today that will face a problem. According to the UKMC, the failure of mortgage brokers to address compliance will have a number of negative effects on the housing market as a whole, including:
· A reduction in the choice of brokers available
· The fact that the FSA will be looking for non-compliant brokers quickly after the regulations take effect - which will probably mean substantial fines and the banning of some individuals from the industry
· Further reductions in consumer choice as many lenders will seek to work only with brokers who can satisfy them that they are fully compliant with the new regulations.
"The consumer is not alone on this issue," commented Ms. Burnett. "If they do not wish to confront their mortgage broker direct, we will be more than happy to do it for them. Our feeling is that, if the industry cannot face change from within, then it will have to bow to the demands of its client base. The more people who ask the right questions of their mortgage broker now, the more we hope will be compliant by 31 October this year."