Everything You Need To Know About Mortgage Regulation
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Everything You Need to Know About Mortgage Regulation
Overview
The regulation of mortgage sales in the UK underwent a significant transformation on October 31, 2004. Prior to this date, regulations were voluntary and managed by the Mortgage Code Compliance Board (MCCB). However, a more comprehensive statutory regulation was implemented, placing oversight under the Financial Services Authority (FSA).
Transition to Statutory Regulation
The FSA, a statutory body with powers granted under the Banking Act of 1987, took over the regulation of the mortgage market. Though not a government department, the FSA operates as a limited company with its board appointed by the Treasury. Mortgage brokers now require authorisation from the FSA, either directly or through an authorised network.
FSA's Objectives for Mortgages
The FSA's responsibilities in the mortgage industry include:
- Ensuring confidence in the mortgage system
- Improving public understanding
- Protecting consumers
- Reducing financial crime
Key Features of Mortgage Regulation
The FSA enforces statutory regulations with strict penalties for non-compliance, including fines, bans, or imprisonment. Key areas covered include:
- Mortgage advice and sales
- Advertising and promotions
- Authorisation and training for mortgage advisors
Mortgage advice must be clear and informative, supported by an Initial Disclosure Document (IDD) and a Key Facts Illustration (KFI), allowing borrowers to compare products effectively.
Understanding the IDD
The Initial Disclosure Document must be provided at the first meeting. If the meeting is over the phone, a summary must be given with written documentation sent within five working days. The IDD should include:
- Whether advice or product information is provided
- Access to the whole mortgage market or a limited selection
- Fees charged
- Complaints procedure details
Understanding the KFI
Before a mortgage application, a Key Facts Illustration must be supplied. This standardised document includes:
- Total repayment costs
- Associated fees and broker commissions
- Mortgage details, including interest rates and payments
- Risks of rate changes
Exclusions and Complaints
Buy-to-let and commercial mortgages are not currently under FSA regulation. If you have a complaint, first address it with the mortgage broker or lender. Unresolved issues can be escalated to the Financial Ombudsman Service.
This comprehensive regulation aims to provide clarity and security for borrowers, ensuring informed decisions and protection within the mortgage market.
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