FSA raises risk concerns

FSA raises risk concerns

The FSA have produced their Retail Conduct Risk Outlook for 2012.  Martin Wheatley, Managing Direct of the FSA states in the foreword 

“It is essentially our view of where the potential dangers lie in the next 12-18 months. Some risks have already materialised and are obvious to all of us. Others have not yet emerged so clearly, but are ones that we believe could crystallise going forward.”

Whilst many of these risks are internal to the financial services sector some have a knock on impact on the way conveyancers risk assess their own work.
Key themes in the mortgage section of the 124 page report included concerns over some lenders charging additional and inappropriate fees to lenders, movement from clients from interest only mortgages and also some unfair changes to standard variable rates.

A key theme for conveyancers is the section titled “Misuse of buy-to-let mortgages” which highlights an emerging risk.

“We are seeing anecdotal evidence of unregulated buy-to-let (BTL) mortgages being used fraudulently as a replacement for regulated residential mortgage contracts, as borrowers and intermediaries seek to circumvent more stringent income and affordability checks. These instances of misconduct could increase. This is especially likely as controls around self-certified mortgages have become tighter in recent years. The pressure to achieve greater margins on overall lending, given the current low returns available, and increasing competition in the buy-to-let market, might encourage firms to engage in this type of behaviour.”

Conveyancers should carefully consider in each buy to let case whether the borrower intends to live at the property.  If there is evidence on the file that borrower does intend to live at a property purchased or mortgaged as a buy to let the conveyancer is potentially party to a mortgage fraud or negligent in failing to spot the fraud on the lender. 

There was also concern that “inappropriate use of products may, in certain circumstances, result in the consumer’s loan being unregulated altogether. This means that consumers would be denied access to the protections that apply to regulated mortgages, such as our arrears handling rules, and access to the Financial Ombudsman Service. It also creates financial risks for the lenders involved." 

Conveyancers should consider carefully the impact on regulatory rights and protections associated with a buy to let and advise the borrower accordingly. 

The report also indicates that  “Forbearance measures have provided a lifeline to many borrowers, but as a result of the length of time forbearance has been granted, some lenders may now find themselves having to develop forbearance exit strategies. This is likely to increase the number of repossessions.”

Such an increase in repossessions will crystallise losses caused in whole or part by conveyancing negligence and will result in claims and further removals from panels.

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