The regulator will now investigate claims that estate agents harm our home-buying prospects when they refer us to in-house brokers in exchange for commission. We look at how homebuyers may have been set back by sharp-elbowed estate agents, how authorities have delayed action and how you can avoid getting stung
The financial regulator is now investigating whether a cosy referral arrangement between estate agents and certain brokers is creating “worse outcomes” for homebuyers.
Many estate agents are financially incentivised to recommend their clients to “in-house” mortgage brokers, receiving commission for every referral. The arrangement is perfectly legal – so long as the estate agent doesn’t do anything to force the client to take up the in-house mortgage advice.
However, the Financial Conduct Authority is now investigating illegal tactics used by some estate agents to win more referrals – including thinly-veiled threats to withdraw offers if the buyer doesn’t go in-house.
No matter if the buyer has already decided to use an independent mortgage broker, who is more likely to be “whole-of-market” – i.e. able to genuinely find the best mortgage deal around.
Just as importantly, the FCA will finally examine claims that this relationship not only leads to illegal behaviour but also major breaches in data protection, damage to credit scores and inferior advice for clients.
We have long been worried on the blog about the liberties taken by estate agents to grab more commission – at the expense of already-downtrodden first-time buyers. Those getting on the property ladder for the first time are likely to be inexperienced when it comes to dealing with estate agents and seen as easy prey for sharp practices.
I used to work for a trade publication where we ran a concerted campaign to raise awareness of the deal behind closed doors between estate agents and brokers.
During our investigation, we found scores of examples where agents had overstepped the mark in a way that would almost certainly have left the buyer Worse Off:
- Estate agents demanding proof of deposits and account details before passing on offers in what could be a breach of the Estate Agents Act of 1979
- Estate agents using the system to obtain sensitive financial information about buyers which can then be passed onto vendors, giving them an unfair negotiating advantage over buyers (in what could be a breach of the Data Protection Act)
- First-timer buyers who are cajoled into using an in-house broker when they’ve already had a mortgage agreed in principle being subjected to further credit checks, possibly damaging their credit score and having a new mortgage application declined if they use the in-house broker. The risk is particularly acute for those with 90 per cent deposits – i.e. FTBs
- Consumers paying over the odds for this in-house advice (as well as legal services) and not even receiving “whole of market” recommendations, meaning they do not necessarily get the best deal they’re entitled to
The FCA has previously denied that it has responsibility for this sector and has previously refused to investigate this murky world of referrals.
I’m glad that it has finally recognised that estate agents need to be held up to the light in the same way that financial services and pensions are. Both of those industries have dedicated regulators who can make sure that they’re playing fair. Estate agents, however, do not. They have an obligation to obey the Estate Agents Act and Consumer Protection from Unfair Trading regulations. It is down to consumers and good estate agents (of whom there are many) to report bad practice whenever they see it.
Weirdly, since 1 April 2014 (April Fools?) the regulation of estate agents across the UK has been carried out by a regional council in Wales – Powys County Council – taking over from the Office of Fair Trading. There is no suggestion that PCC isn’t up to the task, but the FCA clearly see a need to probe this industry more deeply.
The government, for all its pledges about helping first-time buyers, has remained remarkably quiet on the subject of estate agent regulation. Even the body that represents estate agents has called for it, but the former housing minister, Brandon Lewis, dismissed the idea last year, saying it would raise costs and make the sector anti-competitive. And that was that.
So if you’re in the process of dealing with an estate agent, remember that you do NOT have to use the in-house broker and it may not be a sensible idea to do so. Should your estate agent tell you it is mandatory, that your offers won’t be accepted or that they need to see excessive financial details before proceeding, they are not behaving lawfully.
Broadly speaking, using a broker is totally optional but it can be very helpful. Taking recommendations from people you trust is a sure-fire way to find someone who will give you the mortgage deal you deserve; I’ll discuss getting good recommendations in future blogs. I’ll also talk more about the wheezes used by estate agents to get you paying over the odds to buy your home so keep your eyes peeled.
If you’re ever unhappy with the service you have received from an estate agent, you can make a complaint to the Property Ombudsman (if dealing directly with the agent hasn’t worked). If your gripe is with the mortgage advice that you have received (in-house or elsewhere), contact the Financial Ombudsman if you feel the broker hasn’t addressed your complaint properly.