Today, Which? have announced that they plan to become one of the largest mortgage advisers in the UK. They propose offering a “free” service.  Here’s my two bits worth.

Firstly, I think that for an organisation like Which? to become a product supplier is counter-productive if they wish to remain an independent assessor/evaluator of products and services. Secondly and frankly more importantly, to use terms like “free” is decidedly misleading. Which? currently employ staff (advisers) to provide mortgage advice and have presumably regulatory, PI and operational costs. The mortgage companies pay them a procuration fee for placing a mortgage (which is related to the size of the mortgage), but some (a small number) do not. Which? currently take this “on the chin” which in their speak is their own reserves (their own money). At the moment this is about 20% of the mortgage cases that they place. This model is not sustainable in an environment where the client has to be (finally!) told what the costs are. The procuration fee is effectively a cost built into the mortgage, which if removed (often it cannot be) would reduce the cost of the mortgage. I believe that any consumer champion should be advocating that mortgages, one of the biggest financial commitments, are transparent in the same way. This means lenders will have to pull apart their pricing structure, separate out the parts and then put them together again in a clear fashion. This is precisely that is happening to investment products from 2013 – with all of the “costs” separated out.

Which? normally berate companies that say things are fee, when in reality there is a cost. Here they seem to have become blinded by their own ambition. Certainly set up a decent mortgage broking company, but please do so in way that applies business practices and accounting principles that demonstrate a viable, sustainable approach. Frankly this smacks of yet another media outlet protesting its independence, whilst actually being paid to sell products. Most, if not all of the main newspapers have a cut of commission from selling insurance in various guises to its readers, yet failing to disclose this rather fundamental point.

I wonder, if given that a mortgage is going to be arranged, whether Which? will provide proper advice regarding relevant and suitable protection products – which the FSA would expect any other adviser to do, ensuring that should problems befall the borrower, they are not unprepared. If so, Which? would have to become a proper financial adviser – but under RDR rules, they would be restricted, not independent, unless they also offer the full range of investment advice. The term independent is one that I assume that Which? regard rather highly. Oh dear, it seems as though they have not really thought this through. Another mess waiting to happen.

As I don’t arrange mortgages and any protection policies arranged has all commission removed, I think I’m probably in a position to cast justifiable doubt on what Which? are proposing.

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