New rules make homebuying easier

Homebuyers will soon have a clearer idea of what they are getting when they sign up for a mortgage under new proposals drawn up by the Financial Services Authority.

The FSA said its research had found that consumers who were obtaining information about mortgages from several sources were finding it difficult to use this information to narrow down their search to specific lenders or products.

The watchdog said this group of people needed clear, comparable information in order to be able to shop around effectively and narrow down their choice of mortgages. And it added that lenders will have to provide this under the new proposals.

In its consultation paper on mortgage regulation the group is also proposing that charges included in the annual percentage rate (APR) of a mortgage, such as extra insurance or brokerage fees, are made obvious instead of being buried in the small print. The FSA said the range and complexity of mortgage products available meant it was important the key features of a loan and any extra costs were made clear to consumers.

The standard "your home is at risk?" small print on mortgage advertisements is to be replaced with a clearer warning that properties will be repossessed if borrowers do not keep up repayments. The FSA is also calling for fairer treatment for people who fall into arrears or face repossession.

The financial watchdog estimated that the proposals, which should come into force by August next year, will cost the industry around £53 million in one-off costs, and £30 to £45 million annually. But it added that if this cost was passed on to borrowers it would only increase the monthly cost of a mortgage by £2 to £3.

"These days, borrowers need help finding their way through the mortgage maze," said Michael Folger, director of conduct of business standards division.

"The aim of these proposed rules is to make sure borrowers are properly informed and properly treated, from the day they first consider taking out a mortgage to the day they finally redeem the loan. The new regime is focused on cutting through the jargon and introducing consistent standards."

Mr Folger added that the proposals would also make lenders responsible for the quality of information provided to consumers who bought a mortgage through an intermediary.

The Council of Mortgage Lenders welcomed the proposals but said there was a need for consumer testing to ensure potential borrowers were not swamped with information.