When advisers get it wrong

Mortgage advisers are giving people biased advice and making misleading claims that could add thousands of pounds to the cost of their home loan, according to research from the Consumers' Association published this week.

An investigation of 48 mortgage advisers carried out by Which? found that getting good advice is a hit and miss affair. Much depends on the individual adviser rather than who the adviser works for. Only one adviser - at a Bradford and Bingley branch - was found to give all round good advice.

The researchers visited 40 branches of the top 10 lenders plus four estate agents and four independent financial advisers (IFAs).

Most of the advisers were good at explaining the range of deals available, but some just talked about the one they rec ommended. "This doesn't involve customers in the choice and means they can't be sure that the deal is the best one for them," says the report. It's also a breach of the mortgage code, the voluntary code of practice that most lenders and intermediaries sign up to.

Two-thirds of advisers failed to fully assess the researchers' needs before recommending a deal, again a breach of the code. Such action can leave the customer with the wrong deal.

In outlining the deals, some advisers used jargon without explaining it and many failed to explain redemption penalties - the charges levied on some deals if you want to pay off all or some of your loan within a set period.

An adviser should impartially explain the pros and cons of both repayment methods. With a repayment mortgage, each month you pay your lender interest plus a portion of the original capital loan so that you are guaranteed to have repaid the full loan by the end of the mortgage term. With an interest-only mortgage, you pay only interest to your lender, so the amount of capital you owe never goes down. You also normally pay into an investment vehicle such as an Isa, endowment or pension, with the aim that it will grow fast enough to repay the capital at the end of the term.

There is no guarantee that your investment will perform well enough for this to happen. On the other hand, it might produce enough to repay the mortgage capital and give you an extra lump sum.

The right repayment method for you depends on your attitude to risk. Yet, according to Which?, one-third of those who gave advice on the best way to repay the loan failed to establish the researchers' attitude to risk - another breach of the code.

The investigation also found that misleading advice about repayment mortgages was widespread, with many advisers wrongly painting them as inflexible. Thirteen advisers said you'd hardly pay off any of the capital loan in the first few years, and 14 wrongly claimed that repayments were inflexible because, if you moved, you'd have to start again with another 25-year loan.

In fact, taking a loan over a shorter period can save thousands of pounds. For instance, assuming an interest rate of 7.5%, a £70,000 repayment mortgage over 20 years would increase monthly repayments by £50, but save almost £20,000 in interest over the life of the mortgage. Very few advisers discussed this option.

By contrast, some advisers seemed too cautious to recommend anything other than repayment mortgages. "Some did so without asking about our researchers' attitude to risk - they seemed to assume that a repayment is best for everyone, which isn't the case," says the report. "Cheltenham & Gloucester advisers were particularly prone to this." One plus point was that not one adviser recommended an endowment mortgage.

All but seven of the advisers (two Abbey National, two Halifax, one NatWest, one Woolwich and one IFA) mentioned the Mortgage Code. This was a vast improvement on the last Which? mortgage advice investigation in 1998 when fewer than half mentioned the code. But explaining the code isn't enough - complying with it is more important, says Which?.

Helen Parker, editor of Which?, says: "We will continue to press for mortgage advice to be properly regulated by law. In the meantime we welcome moves by the Mortgage Code Compliance Board to introduce compulsory training for mortgage advisers."

Stand up for yourself


• Arm yourself with as much information as you can about the types of deals (eg fixed, capped, discounted, cashback) and repayment methods available before you go for advice.

• If you want advice, rather than just information, make sure you tell the adviser that you want a recommendation of what's best for you.

• Ask the adviser to tell you about the deals they offer and to go through the pros and cons of each.

• Think about your circumstances and future plans (eg do you want to pay extra off on your mortgage? Is your income likely to change dramat ically in the next few years?). Make sure you tell the advisers about them - don't wait to be asked - and get them to explain why the mortgage they've recommended is suitable for you.

• Think about your attitude to risk. Do you want a guarantee that you will repay your mortgage by the end of the term? Or are you happy to go with a repayment method that doesn't give you that guarantee?

• Be aware of the myths: You don't have to take a mortgage over 25 years. Ask the adviser to quote on a 20-year term or less as well as the standard 25-year term. And repayment mortgages aren't bad if you want to move.