When you arrange a mortgage for a house you want to live in, this is called a residential mortgage.
A mortgage broker who provides advice on this type of mortgage must be regulated by the Financial Conduct Authority (FCA). The FCA is the regulatory body that makes sure that advisers are appropriately qualified, run a solvent business, treat customers fairly and maintain their knowledge through continuous professional development.
However, many consumers do not realise that the FCA does not authorise all mortgage products in the market place. For example, a business buy-to-let, which is a property that has been purchased specifically to let for business purposes, is not regulated by the FCA.
Only what are known as ‘accidental landlords’ gain any protection from the FCA, these are landlords who for some reason find themselves with a property that they now let out, rather than one that they have bought specifically to do so. Commercial mortgages that are arranged for purchasers buying through a limited company, also do not benefit from the protection of the FCA.
This effectively means that a broker without a mortgage qualification, or without having obtained FCA regulation, can actually provide mortgage advice to the unknowing consumer. The risk of this is that if something goes wrong, the consumer cannot turn to the regulators in support of their complaint.
Fortunately, many lenders in the buy-to-let market place have chosen to only deal with brokers that are regulated by the FCA, even though they are not required by the regulations to insist on this. This has meant that the standards of buy-to-let advice are of a similar quality to that you can expect from a residential mortgage adviser.
However, not all commercial lenders and not all buy-to-let bridge lenders insist on the same. This could mean a consumer, borrowing a substantial sum of money, is relying on advice from a broker who has not evidenced their knowledge or ability in the market place.
Recognising this shortcoming in the market place, networks of advisers like Connect are improving standards through training. Connect recently launched an Academy to provide a standard of training and a level of support that non-regulated brokers or those looking to become an adviser in the market can attend and prove their worthiness to provide advice in these areas. Only those advisers who demonstrate the required level of skill can join Connect and come under its FCA regulation.
So how can a consumer check if an adviser or the company they belong to is authorised by the FCA?
The FCA publish a register of the advisers and companies they have regulated and this is publicly available at https://register.fca.org.uk
If you are looking to take out or change your mortgage it is important that you look to check this before working with an adviser. We have seen circumstances where clients have paid substantial sums to non-regulated brokers and not been approved for a loan, and then have been unable to recover what they have paid.
The FCA is continuously reviewing the regulation of the market, but it is good for consumers to know that some lenders and brokers are also looking to improve the standards of advice by adopting the principles of regulation, even where not formally regulated by the FCA.