Published on : Tue, 15 Nov 2005 21:04GMT
by : Andy Clarke

LONDON - The Financial Services Authority has come down heavily on small mortgage brokers saying that they still had "significant failings" in conducting the business of advising and selling home loans to consumers who had to present their own incomes.

The FSA reached this conclusion after reviewing 39 small mortgage brokers and conducting a "mystery shopping" exercise at 41 others. The FSA found that only three of the 41 firms checked out by the "mystery shopping" exercise advise clients on how to get bigger and better home loans. At the 39 firms visited by FSA staff, there was evidence of poor record keeping, a practice that the FSA has sought to discourage.

Commenting on the findings, Clive Briault, the FSA's managing director of retail markets issued a statement saying, "The findings on sales and advice from brokers show significant weaknesses which are disappointing,. Further work needs to be done not only on affordability and suitability checks but also on the record keeping of the advice given."

A BBC documentary aired in 2003 had found that some brokers were advising clients to fake income certificates and thus get a bigger loan. Following that report, stringent measures were undertaken by the FSA and these have managed to contain the practice to a large extent. Despite the poor report, Briault maintained that “it is encouraging that we have found no evidence to suggest that salary inflation is widespread or systematic within the broker industry."

Reacting to the FSA report, Ben Stafford, head of policy at the Association of Mortgage Intermediaries, said, "We believe the findings show there is no endemic failure in the industry aside from the three firms singled out by the FSA. Much of the weaknesses mentioned relate to poor record keeping, which means brokers need to do more to improve."