Watchdog demands mortgage firms give better advice

A City watchdog today called on mortgage firms to improve their advice processes after discovering that a significant number were failing customers.

The Financial Services Authority (FSA) said that only a third of all companies it sampled had robust systems in place to ensure clients were provided with suitable advice.

Between June and October, the regulator reviewed 252 mortgage firms through a combination of mystery shopping, visits and questionnaires.

It found that there was scope for improvement in all aspects of the advice process.

Some of the poorer areas identified were the assessment of customer needs, including affordability.

The discovery is likely to heighten concern that some consumers are being pushed into taking out large home loans that they cannot afford.

Other areas that need improvement, according to the FSA, include training and competence of staff, overal systems and controls and record keeping.

Clive Briault, managing director of retail markets at the FSA, said: "We found significant failings in the advice processes in a number of mortgage firms.

"Poor processes increase the risk of unsuitable advice being given. It is essential that firms have robust processes in place, so that they treat their customers fairly and provide suitable advice."

He added: "Customers should consider what they can afford both now and in the future, taking into account any likely changes to their circumstances."

The adequacy of the advice process differed in relation to the size of the company, the FSA found.

While larger firms generally had robust systems in place, they could not always demonstrate that they were using them, it said.

Small mortgage networks and advisers, however, were found to be more at fault.

The FSA said more than three quarters of firms in this sector generally did not have adequate advice processes, leading to the risk of unsuitable advice being given.

A number of these companies have been referred for enforcement action.