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FSA/PN/064/2006
29 June 2006

The quality of mortgage disclosure documentation has improved over the past year, the Financial Services Authority has found. The results of its latest review reveal that:

• The large mortgage lenders in the sample, who account for around three-quarters of total mortgage lending in the UK, have made good progress in taking steps to improve the quality of both their Initial Disclosure Documents (IDDs) and Key Facts Illustrations (KFIs) and are on course to meet required standards by this autumn.
• The small lenders in the sample produced IDDs of an adequate standard.
• However, more than 25% of the KFIs reviewed that were issued by small and medium-sized intermediaries and small lenders still contain material errors relating to fees and charges.
• And more than half of the intermediary IDDs reviewed contained five or more errors - although an improvement on the 80% figure in the 2005 review, this is still inadequate.

FSA Managing Director of Retail Business Clive Briault said:

“I welcome the encouraging progress made over the past year in raising the quality of mortgage information provided to customers. Providing consumers with clear and relevant information is a key element in consumer protection because it enables them to make informed decisions and to shop around. But this review and other areas of our work have found that some firms are still not doing enough to meet our disclosure standards. We will continue to press for these standards to be met, by following up shortcomings with individual firms and by working with the industry."

The 2006 review followed a similar exercise conducted last year which identified variable quality and widespread inaccuracies in the mortgage disclosure documents reviewed. The FSA subsequently gave feedback to the Chief Executives of mortgage lenders and published a Factsheet to help intermediaries achieve a better standard of documentation.

The FSA's work focussed on the breaches it considered to have the greatest potential for consumer detriment. Under the FSA principles a firm is required to pay due regard to the information needs of its customers, and communicate information to them in a way which is clear, fair and not misleading.

The FSA will continue to work with firms to help them remedy remaining identified problems. This will include following up particular concerns with firms and, in addition to the mortgage disclosure templates already on the FSA website, developing website material to include examples of actual errors made to help firms avoid these in future. Also, small mortgage intermediary firms visiting FSA regional roadshows can have their IDD reviewed to help firms identify any key areas of non-compliance and potential confusion for consumers.
The FSA will undertake further work to check that the clarity, content and length of the descriptions of products and features included in KFIs are helping consumers to shop around and make informed decisions.

Notes to Editors

1. More information about last year’s review can be found here (PN/050/2005)
2. The existing disclosure templates are available on the FSA website
3. Examples of IDDS and KFIs as well as details of the most common errors identified from our review will be available shortly on the FSA website.
4. Principle 7 of FSA's Principles for Businesses states: A firm must pay due regard to the information needs of its clients, and communicate in information to them in a way which is clear, fair and not misleading.
5. Mortgage disclosure documents, comprising of Initial Disclosure Documents (IDDs) and Key Facts Illustrations (KFIs), are a key part of the FSA's mortgage regime and its aim to help retail customers get a fair deal.
6. IDDs and KFIs were developed after detailed consumer research to give consumers clear and comparable information to help them shop around effectively, narrow down their choice of mortgages and make informed decisions. IDDs include information on whether the customer will receive advice or just information from the firm, the range of products they can access through the firm, and how much they will have to pay for the service offered. KFIs include a description of the mortgage, the amount the customer will have to repay each month and the risks of the product.
7. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
8. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve its business capability and effectiveness.