Time to tackle mortgage misery

Many mortgage borrowers are continuing to receive inadequate advice and poor information from lenders and brokers, despite the introduction of a new code of best practice three years ago, according to the industry's chief consumer watchdog. The Building Society Ombudsman warns that while the Mortgage Code has only been in operation for a relatively brief period, so far it seems to have failed to significantly improve consumer protection.

The Ombudsman's latest annual report, published this month, warns in particular that borrowers are still being caught out by early redemption penalties that tie them into uncompetitive loans. 'It is disappointing to note that complaints about early repayment fees and lock-ins continue to generate a large number of complaints. This suggests, at least, that there is still a need to improve some of the advice and documentation relating to mortgages,' the report says.

The warning reflects growing concern among advisers that borrowers are getting too little help in choosing between the 4,500 mortgage products now on offer in the UK. 'The biggest problem with the mortgage industry is consumer confidence and moves towards regulation have been pretty tepid,' says Matthew Ward, marketing manager at E-Loan, a company set up last year to provide independent mortgage information over the internet.

However, the government refuses to consider outright regulation of mortgage advice. Until January this year, ministers said they wanted to give the Mortgage Code time to improve standards in the industry. Then the Treasury announced it would give the Financial Services Authority, the UK's chief financial regulator, powers to regulate mortgage sales, from next year. But crucially, the FSA will not be charged with policing advice on mortgages, either from lenders or brokers.

That omission has been criticised by consumer groups, including the FSA's own consumer panel. Sheila McKechnie, director of the Consumers' Association, says: 'The government's plans do not address the problem of poor and misleading mortgage advice.'

More positively, the FSA will have powers to force an improvement of the quality of information which lenders and brokers offer borrowers. 'The big problem has been that lenders have only put the good bits into their advertising and that is still happening,' says Ray Boulger of independent mortgage broker John Charcol. Boulger is particularly worried that lenders are burying redemption penalties in the small print of product literature. 'By trying to hide penalties, you make it difficult for people who know what they want to analyse your products and you mislead people who don't know what they want,' he says.

However, the Consumers' Association argues that many borrowers rely on the advice that the FSA will not be regulating, rather than analysing literature themselves. McKechnie says: 'Our research over many years shows that consumers cannot be confident of getting unbiased, high quality advice.'

Part of the FSA's strategy will be to implement the government's Cat standards scheme - minimum standards on charges, access and product terms - in the mortgage industry. But Ward believes the move will improve the situation only marginally. 'The consumer needs something stronger from a regulatory point of view,' he says. In the meantime, Ward believes 'people are being left in the lurch'. He expects the number of complaints to industry watchdogs to remain high. 'Regulation on disclosure of information should at least be improved,' adds Boulger.

However, the Council of Mortgage Lenders, which represents the industry, argues that borrowers already have access to plenty of useful comparative information. Bernard Clarke, the CML's communications manager, says: 'Consumers need to do their research thoroughly - not all consumers do as much research as they should and they must take on their share of the responsibility.'