Since the introduction, on 21 March 2016, of rule changes around mortgage advice required by the Mortgage Credit Directive, we have had some questions about how this might affect a firm’s independent status.
In our article published on 7 March 2016 we stated –
Impact on Firm Status
FCA rules do not require firms to broaden their scope of service to include second charge as well as first charge mortgages. If firms choose not to offer second charge then their disclosure documentation should make this clear and they will not be able to use the term ‘Independent’ in relation to advice on mortgages.
But, where a firm does offer both, it will need to take all these products into account when giving advice. If an existing mortgage holder wishes to borrow more, the rules require firms to make the customer aware that other forms of borrowing are available that may also meet the need (e.g. a second charge mortgage if a customer is considering a further advance, or if a customer is considering a second charge mortgage, the firm must make the customer aware that it might be possible to obtain a further advance). However, firms are not required to provide advice on the suitability of possible alternative options if these are outside the scope of service they have chosen to offer.
This is indeed the situation.
However, what if a firm does advise on second charge mortgages when appropriate but, for some reason, refers the client to a second charge specialist or lender for that advice to be implemented? Can the firm still be independent if it does not implement the advice?
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