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Miss Melanie Johnson indicated dissent.
Dr. Cable: The Minister shakes her head, and this may be a point that she can be clear up quickly. My understanding was that small loans would be covered by consumer credit legislation, rather than through the FSA. I had understood that there was to be dual responsibility for mortgage regulation between two separate Government Departments. I hope that that will be made clear.
Why have the Government chosen to defer the introduction of mortgage regulation until what would appear to be the latest possible time? There are two perfectly legitimate lines of argument. One is that there are serious problems of the abuse of consumers--I thought that this was the view of Ministers--and that mortgage regulation was urgent and important, in which case it should be brought within the FSA as quickly as possible. The other view, which some Conservative Members have argued--it is a perfectly plausible argument--is that self-regulation was working perfectly well, the mortgage lenders were learning as they were going along, and there was no need to change the system. They thought that the system should be spun out for as long as possible.
What is the rationale behind the timing that Ministers have chosen, which is to introduce the system over 18 months? Is it because that is the time needed to staff the FSA? There may be perfectly good practical reasons.
My understanding is that mortgage advice is not to be regulated in the same way as mortgage lending. This appears to imply that an independent financial adviser mis-selling a mortgage package and giving bad advice is exempted from the proposed regulatory provisions. That seems odd. I can understand why the authorities might wish to encourage independent financial advice--which, in itself, is a good thing. Independent financial advice is desirable, rather than tied advice. However, exempting it altogether from the provisions of mortgage regulation seems odd, since we are aware from the private pensions sector that a lot of the malpractices occurred in the IFA sector--not that the IFAs should be the scapegoats. If there are abuses, they apply to the independent advisory bodies as well as to the mortgage lenders. Why regulate one and not the other? The reasoning behind that is unclear.
I want to understand how some of the matters which most concern people about mortgage lending will be dealt with under the new regime. For example, redemption
penalties trouble many people who take out a fixed-rate mortgage on attractive terms and then pay a heavy redemption penalty if they repay early. How will the system outlaw, change or manage that?
If someone goes to a building society or a bank to take out a mortgage, they are under a lot of pressure. They are told that they can have a mortgage, provided they take an endowment or the society's insurance policy. How will that activity be regulated under the proposals? I ask these questions in all innocence, as I do not know how the system will work. I am as much concerned with getting answers as I am with establishing the process by which the House will conduct the debate.
There are at least three members of the Select Committee on the Treasury here and, in due course, the Committee will be looking at this matter. However, it would seem appropriate, given the importance of the subject to large numbers of people, that we should have a proper opportunity to discuss what mortgage regulation will be about.
Mr. Flight:
I wish to echo much of what the hon. Member for Twickenham (Dr. Cable) has said. When I read the Government's announcement casually, it seemed reasonable. It was only when I looked into it that, regrettably, I saw that the spin papered over some major problems.
There are various issues to discuss. First, is the FSA capable of providing the regulation that is needed and appropriate? Is the reason for delay that Howard Davies has too much on his hands? The Treasury has signalled that it was cautious, as the large players wanted regulation and we were heading for a form of regulation which would encourage cartels, rather than competition.
It is important that the regulation of mortgages is the first time we have moved from regulating the asset side to the liability side. If we regulate borrowings against houses, why do we not do so for other borrowings? There are as many potential scams and criticisms when people borrow money for their businesses. Where do we draw the line as regards personal borrowings, other than small consumer borrowing?
I was amazed to find that, under the Government's proposals, providers would somehow be responsible for advice. When an adviser is giving advice--whether it is on buying financial assets, taking out a mortgage or taking out an insurance policy--it is, broadly, all the same thing. It is a question of whether that adviser is giving the best advice to his client or clients in relation to financial products. We have chaos now, in that an adviser is regulated under the Bill in relation to assets, but has a completely different regime in relation to insurance. There was chaos left from the old regime, before insurance comes under the new regime, while mortgages are not regulated at all.
I do not pretend to know the answer, but what we have now does not strike me as especially satisfactory. The product is regulated, but not the advice, and the regulation will not start for some time. Life will be more confusing for the consumer buyers of mortgages than it is at present. I agree with the comment that it is an extraordinary way to give birth to the process, because it has not been debated in Parliament or even announced. It has taken place outside the democratic process, and we now have a package of measures that most hon. Members probably do not understand at all.
Mr. Cousins:
I commend the Government on the measures they have taken to bring mortgages under some kind of regulation. That is long overdue and could not have been done under the previous legislation. The Government clearly signalled that they wished to consult widely on the procedure, and that consultation produced a clear and emphatic result. The Council of Mortgage Lenders began by resisting the idea of mortgage regulation, but now accepts and indeed advocates it, following the consultation. That reflects the real progress that the Government's approach to the issue has brought.
I also have to say that the House is indebted to the hon. Member for Twickenham (Dr. Cable) for tabling the amendment, because it enables us to consider the issue of mortgage advice. Without repeating what was said by the hon. Member for Arundel and South Downs (Mr. Flight), I suggest that it would not be true to say that mortgage advice is one of our best regulated professions. That constitutes a real difficulty. We are not dealing with a function that is already well patrolled and policed by a professional organisation. If advice and, in some respects, packaging advice--linking to mortgages to other products--were not regulated by the FSA, we would end up with a very complicated situation.
In particular, the mortgage provider, whom the Government intend to regulate, would be in a difficult position. The mortgage provider may have a client who is already committed to a course of action that has been urged by the mortgage adviser and which the mortgage provider may find difficult to resist. None the less, as matters stand, it is the mortgage provider who will carry the responsibility for the failure of the advice, not the adviser.
I urge my hon. Friend the Minister to consider how the issue might be further clarified. The Government have done so well on the issue and it would be a shame not to have a system that was fully organised and protected, and robustly and adequately regulated. In other respects, the Government have done splendidly in bringing an important area of concern properly under control.
Miss Melanie Johnson:
The comments made by hon. Members this evening about mortgages have ranged widely on the basis of the amendment, but I am happy to answer the points that have been made. The amendment is specific; it covers the same ground as paragraph 23 of schedule 2, which is the provision in the Bill--it was there when we discussed the issue in Committee--that enables
The original day for debate on this part of the Bill was two weeks ago, which would have been shortly after I had made the announcement. Because of various parliamentary eventualities, a little time has passed and we have been able to discuss the issue now, which has been beneficial.
Virtually all residential mortgages will be covered by the FSA, and all first charge mortgages will be covered by FSA regulation, regardless of the value of those mortgages. The only provision that is separately covered--in this respect, we are subject to other legislation that we are not here to debate--will be second charge mortgages or mortgages for such things as double glazing.
Hon. Members have raised the issue of mortgage advice. In considering mortgage regulation, we have tried to address the detriment that consumers were experiencing in dealing with the mortgage market and which was reported to us as a result of the consultation. That detriment was mainly based on bad and misleading information, including hidden charges and surprise small print, which consumers needed a fine-toothed comb to discover. Consumers received many unpleasant surprises from the mortgage deals that they had been sold. We sought to address those issues because consumers are still experiencing those difficulties. It is important, following such a consultation, to address the problems that it found, and that is what we are doing.
The issue of advice has exercised people somewhat. It is important to realise that because endowment mortgages are investments, advice about them has always been covered by regulation and will continue to be covered. All mortgages that are to be repaid by means of endowments as investment vehicles will be regulated, as has been the case for some time. The FSA has recently taken a number of steps on the selling of endowment mortgages, and many providers have decided to pull out of the endowment market. There have been a number of such announcements.
Advice is a technical term in this context. It is not like popping into the estate agent's and asking whether it has a number of different mortgages. We are talking about someone who will go through an applicant's entire financial circumstances. It may take an hour or more to do and will require the applicant to produce background information such as bank statements, pay slips and other evidence of his financial circumstances. People divulge such information in considerable detail. Those who are technically giving advice can then match up the applicant's financial circumstances to a range of products available in the market. That is the process of advice giving. We are not talking about the more casual advice that we all receive from different people just by exchanging a few words with somebody under particular circumstances.
I decided not to regulate mortgage advice because that was not the problem that people were identifying. Nor do I think, in the light of the regulation that we have chosen, that it will be necessary in many cases for people to resort
to such advice. If they are buying endowment products or going for any investment vehicle, they will have to get advice, and that advice will be subject to regulation.
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