Mortgage Compliance

Mortgage Compliance - Introduction

The Financial Services Authority (FSA) has been responsible for mortgage compliance since October 31st, 2004.

In theory, this means that the FSA examines mortgage products in a similar way to personal pensions, unit trusts and other financial investments. Around 100 mortgage lenders and over 7,000 mortgage brokers and independent financial advisers are regulated by the FSA.

Mortgage Compliance - The Basics
The FSA lays down rules that information about mortgage products must be complete, transparent, unambiguous and easy to compare with similar products on a 'like for like' basis. Mortgage providers normally make this information available to potential borrowers in the form of a Key Facts Illustration (KFI).

Mortgage Compliance - Key Facts Illustration (KFI)
A Key Facts Illustration (KFI) can be several pages in length and usually follows a standard template:
general description of the KFI;
service being offered by the mortgage broker or lender;
customer's requirements, e.g. amount to be borrowed, type of mortgage, mortgage term, purchase price of the property;
mortgage features, e.g. type of mortgage, mortgage term, interest rate charged, restrictions, linked products;
overall cost of the mortgage and Annual Percentage Rate (APR) charged;
number and amount of monthly payments;
explanation of associated risks, e.g. if interest rates rise or borrower's income falls;
fees payable to lender and broker;
insurance required and whether tied to mortgage provider;
early repayment or transfer options;
overpayment options;
additional features, e.g. options for underpayments or holiday payments, cash-back and other incentive payments, linked current account;
brokers' fees paid by mortgage lender;
additional general information about mortgages;
mortgage provider's contact details.

Mortgage Compliance - Exceptions
Perhaps, surprisingly, some types of mortgage do not come under the auspices of the FSA. Buy to let mortgages and equity release schemes are not covered by the mortgage compliance regulations. The logic for excluding these types of mortgage product is that they are considered to be commercial loans rather than traditional mortgages. However, many mortgage providers will provide KFIs, upon request, for these types of products, which are often more complex to understand than more conventional mortgages.

Summary
Mortgage compliance is regulated by the Financial Services Authority (FSA);
mortgage compliance information is usually provided to potential borrowers in the form of a Key Facts Illustration (KFI);
buy to let mortgages and equity release schemes are excluded from personal finance mortgage compliance regulations.