A new mortgage regime, but has it worked?

Lenders and intermediaries arranging mortgages now have to provide an Initial Disclosure Document, setting out how they conduct business, as well as a Key Facts Indicator (KFI) for any specific loan.

These documents should help borrowers understand the exact service their lender or mortgage arranger offers, including whether they search the whole of the market.

The KFI document is intended to make it easier for borrowers and home buyers to make like for like comparisons of the hundreds of loan deals on the market.

The new regime has not been all plain sailing, according to mortgage brokers. Some lenders' KFI documents reach a dozen pages. Instead of promoting greater transparency and choice, they appear to be confusing borrowers.

The time it takes for lenders to give buyers a mortgage quote has also lengthened considerably. Prior to statutory regulation, most mortgage interviews lasted about 20 minutes. Some lenders report that the process now takes an hour and a half.

Moreover, a survey by Charterhouse Research found that the overall mortgage application time - from a customer first enquiring about a loan to receiving an offer - is 20 per cent longer than it was before M Day.

Brokers, the report says, are finding that the extra processing time means they can no longer test the water with an application; this could mean that home buyers miss out on some of the more attractive deals.

Ray Boulger, a senior technical manager at John Charcol, the broker, believes that whilst regulation has helped some borrowers avoid problems, especially around poor advice, it has inconvenienced a far greater number of people.

"One problem is certainly that mortgage applications are taking longer," he says. "If a client will be spending an hour and a half with one lender's adviser, they are not then going to see other lenders on the high street. If the changes were meant to promote competition, they are having the opposite effect."

Boulger points out that under self-regulation, there were only around 100 complaints a year, of which around half were upheld. Complaints have risen since, to around 400, due in part to greater awareness of the complaints procedure. But that remains a very small number, given that Britons arrange one and a half million mortgages a year.

There have been some benefits to home buyers, including lenders who are now less likely to promote poor-value deals - such as fixed or discount mortgages with extended tie-ins - because the new rules prevent them from burying such terms in the small print.

But concerns remain over the cost of complying with mortgage regulation. The Council of Mortgage Lenders, the trade body, calculates that the additional costs amount to around £100 per application. The mortgage business is extremely competitive at the moment, so lenders have not generally passed these costs on to borrowers through higher interest rates. Lenders have, though, increased less transparent charges, such as arrangement and exit fees, even though this trend started before statutory mortgage regulation came into force.

The industry needs to claw the extra costs back from borrowers over the life of a mortgage. This is one reason that exit fees - the charges levied for closing a mortgage - have increased sharply. "If you asked borrowers whether the new processes are worth £100, most would say no," says Boulger. "The majority don't need the extra protection."

A "mystery shopper" survey carried out by the FSA this year suggested that by no means all lenders and intermediaries complied with the new rules. The recommendation for buyers is if an adviser or lender does not appear to follow the rules, walk away.