Lenders face charge probe

Gordon Brown: Cracking down on unscrupulous mortgage lenders
The Weekender

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Big mortgage lenders were today threatened with a probe into the routine overcharging of loyal customers.

A study commissioned by Chancellor Gordon Brown found that longstanding borrowers pay over the odds so that banks and building societies can offer attractive deals to newcomers.

The interim report, from Professor David Miles, warned that the Office of Fair Trading and the Financial Services-Authority may be called in to investigate the evidence of "cross-subsidisation". He will make his final recommendation in the spring.

Mr Brown will give the findings a cautious welcome when he delivers his annual pre-Budget report in the Commons tomorrow. He had asked

Professor Miles, of Imperial College, to examine why 25-year fixed-interest mortgages, popular in the United States and on the Continent, have never taken off in Britain.

The report found that as a side-effect of the race to offer cut-price deals on the most popular mortgages - discounted rates and short-term fixed rates - other long-term deals seemed like less good value by comparison.

The group of customers who were persistently overcharged were those paying the standard variable rate, who make up around one in three of all mortgage payers. Professor Miles said customerson the standard variable rate were likely to be those who were less financially aware, who did not realise that they could save money by seeking a cheaper deal elsewhere.

He called the techniques used by lenders "undesirable" and said: "I am concerned that some sections of the market are not working as well as they should and in the interests of all borrowers.

"I now intend to have detailed discussions with the FSA and the OFT." Professor Miles found that first-time buyers and householders seeking to remortgage their properties were unduly concerned with the immediate repayments in the first few years of the deal, and paid too little attention to the longer-term situation.

He accused lenders of doing too little to educate their customers, and said: "The information and advice given to consumers during the sales process often does not help them much in understanding risk."

Britain's reliance on variable- rate mortgages is one of the factors making it difficult for the UK to join the euro because its economy moves in a different cycle to those on the Continent.

But Professor Miles said tough competition in the industry would make it difficult for any individual lender to break away from the pack and sell its mortgages in a different way.

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