The Mortgage Code

Update: As of 31st October 2004, the mortgage industry is directly regulated by the Financial Services Authority and the Mortgage Code has ceased to apply

The Mortgage Code is a set of standards and minimum levels of service that most mortgage lenders and brokers agree to provide. But what does that mean for you?

How does The Mortgage Code help me?

The Mortgage Code

As buying a house is likely to be one of the biggest investments you’ll make, and the whole area of mortgages can be complex and confusing, it’s essential that you’re fully aware of your options and commitments at every stage of arranging your mortgage.

The Mortgage Code sets out the absolute minimum standards of service that you should expect, including that your lender or broker should explain your options and answer questions every step of the way.

And if things go wrong – for instance, you’re given bad advice or not told about all aspects of your mortgage – then you will have the chance of compensation if it can be shown that the code wasn’t followed correctly.

Who’s signed up?

The Code is voluntary to join – at the time of writing, the mortgage industry is not regulated by any official government organisation. However, virtually all of the lenders who provide mortgages in the UK have agreed to be bound by its conditions, as have over 12,000 brokers (also known as intermediaries). The chances are, whoever you’re arranging your mortgage through will be signed up, and if not you should think twice about continuing with that provider.

What does it cover?

A full copy of the code must be given to you by your mortgage provider if you ask for it, but here are some of the main areas it covers:

You should be told about all fees and charges in advance, including any possible penalties for paying your mortgage off early
The method of repayment (capital, endowment, interest only etc) should be clearly stated
The kind of interest rate should be explained, whether it’s fixed, capped, variable etc, along with details of any changes (for example, what will happen when any introductory period has finished)
Whether you need to take out insurance, and if there are any restrictions on who you insure with
Whether there are any restrictions on moving home during the mortgage term
What your repayments will be, both initially and after any discount has ended

What if I receive bad advice on mortgages?

Lenders’ and brokers’ compliance with The Mortgage Code is monitored independently. Any company who signs up to the code must also be a member of a complaints system such as the Financial Ombudsman Service or the Mortgage Code Arbitration Scheme.

Your lender or broker must tell you which scheme they are a member of, and should you be a victim of a company not following the code properly, you may be able to claim up to £100,000 in compensation.

The Future

The Government has announced that the mortgage industry will shortly become fully regulated, in line with other areas of the personal finance industry. This is due to take place in October 2004, and means that the mortgage industry will be overseen by the Financial Services Authority, the watchdog that currently regulates credit cards, loans, and other personal finance products.