TMA mortgage club is urging lenders to report when they approach borrowers ahead of the expiration of their mortgage, as millions of borrowers are at risk of waiving their right to full personal liability protection if they switch mortgage through a product transfer.
The club says that lenders are increasingly contacting clients on their books to transfer their current mortgage to a new product, before their current mortgage deal ends. They are incentivising borrowers by waiving early repayment charges and offering lower monthly payments.
TMA is concerned that by instigating the sale without professional advice, the levels of personal liability are significantly increased for borrowers. This is because they may lose the full Financial Ombudsman Service protection covering the provision of advice. With each unadvised product transfer, lenders are therefore increasing the underlying risk in the mortgage market as they are providing potentially unsuitable products to mortgage holders, TMA said.
David Copland, director of TMA mortgage club, said: “The risks of this continuing unreported are extremely concerning. Although we know that this market is increasing, we don’t know by how much and how fast it is growing. However, it is clear millions of people are at real risk of switching to a mortgage which isn’t right for them and the financial implications of this could be irreversible for the individual and their family.
“If this market is not made more transparent, the underlying strength of the UK mortgage market could be in for a major shock.”
At the present time, product transfers are not recorded as separate to remortgaging transactions, making it difficult to assess how often they take place. Remortgaging statistics are recorded in industry gross lending figures whilst product transfers are not, for example.
However, TMA says it is certain that the product transfer market has grown since the credit crunch and has skyrocketed since the implementation of the Mortgage Market Review. This is because lenders have concentrated efforts on their existing mortgage books without necessarily giving advice. In the first nine months of 2016, remortgaging approvals were 15% higher than in the equivalent period of 2015.
TMA believe lenders should offer both new and existing clients the same commercial rates to improve customer outcomes and increase transparency in the product transfer market. TMA are calling for lenders to report when they are approaching customers to reduce the risk of borrowers transferring to an unsuitable product.
Copland added: “The professional advice given by brokers to borrowers is being compromised. Advisers take into account the individual circumstance of each client before recommending a mortgage. However, a lender will not know why a broker has decided to recommend a certain product for a fixed period and therefore cannot know whether they have recommended a suitable product to the customer through a product transfer.
“Brokers need to know whether a lender they are dealing with has a product transfer system in place and understand how it works. It is critical for brokers to revisit their back books on a regular basis and update the soft facts about their clients. Then, when a lender contacts your client about a product transfer, you are best placed to offer professional advice.”