Lenders’ product transfer sales tactics break Mortgage Market Review rules around non-advised sales and should be reviewed by the Financial Conduct Authority, according to industry experts.
Last week the Association of Mortgage Intermediaries published its quarterly economic bulletin, which called out lenders for potentially causing consumer harm through a lack of transparency around product transfers.
Ami estimates that product transfer gross lending is worth a total of £80bn–£100bn, more than a third of all mortgage lending.
However, lenders refuse to say how much of their books consists of product transfers, and these figures are bundled up with wider remortgaging figures.
Ami says: “Customers face potential detriment as a straightforward product transfer does not always trigger a revaluation, affecting LTV, rate and affordability.
“The ongoing refusal of lenders to disclose the volume of lending done on a product transfer basis is opaque at best and highly questionable at worst.”
John Charcol senior technical director and Ami board member Ray Boulger says the way some lenders promote product transfers risks breaching MMR rules.
He says: “I think the concern is that lenders are effectively circumventing the basis of the MMR by encouraging people to go down the non-advised route and offering them certain incentives on a product transfer. Lenders appear to be trying to get around the rules that the MMR tried to implement.
“The worry that we have at Ami is that lenders are pushing people into taking these deals on a non-advised basis where other factors won’t be taken into account.”
London & Country Mortgages director and Ami chairman Pat Bunton says: “We have a consumer outcome that is diametrically opposed to policy intent.”
TMA Mortgage Club says lenders are increasingly contacting its customers to encourage them to take out a product transfer, often incentivising them by waiving ERCs and offering lower monthly payments.
Bunton adds that consumer awareness of the possible consequences of choosing a product transfer is “incredibly low”.
The Ami bulletin says the issue should be taken up by the FCA as part of its upcoming review into competition in the mortgage market. Ami says: “If regulation encourages shopping around by customers in general insurance and annuity markets, will the market study into competition in the mortgage market ignore or acknowledge the potential customer detriment caused by continuing to allow lenders to bury product transfer lending volumes without full disclosure?”
Bill Warren Compliance managing director Bill Warren agrees the FCA should take up the issue.
He says: “I hope the FCA listens to Ami and the intermediary market, in terms of whether this is doing the right thing. Is simple product transfer treating customers fairly and giving them the best deal? I don’t think it is. It will be in certain cases, but in a lot it won’t.”
Bunton says: “We’ve been pushing to ensure that it is [covered by the FCA].”
An FCA spokeswoman would not comment on the content of the FCA competition review but said the regulator was aware of Ami’s report.
Warren says some lenders are unfairly pushing product transfer deals to their customers.
He adds: “There are a couple of lenders with product transfer schemes which, you could argue, remove any chance of the borrower having a choice in the matter. It’s a matter of fact: ‘You are moving to this rate, you don’t have to do anything, thank you and goodbye.’”
London Money director Martin Stewart says he has not seen examples of lenders pushing product transfer unfairly, but adds: “If you go to a bank, you may be steered in a certain direction when actually there are other offerings available that a broker would be aware of.”
One 77 Mortgages managing director Alastair McKee says the practice of lenders contacting borrowers months ahead of the end of their mortgage can add pressure for customers to choose product transfer. He adds: “If they are not getting advised and the customer is dealing direct with the lender, they are only telling them about their products and not really advising them.”