TMA mortgage club is calling on lenders to report when they contact borrowers before the end of their mortgage term to reduce the risk of them transferring to an unsuitable product.
The club says this practice means millions of borrowers risk waiving their right to full personal liability protection if they switch mortgage through a product transfer.
A TMA statement says lenders are increasingly contacting clients on their books to transfer their current mortgage to a new product.
The club says lenders are also incentivising borrowers to choose product transfer by waiving early repayment charges and offering lower monthly payments.
A TMA statement says: “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 mortgage club director David Copland says: “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.”
Currently, product transfers are not recorded as separate to remortgaging transactions.
TMA adds that the product transfer market 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.
TMA says lenders should offer both new and existing clients the same commercial rates to increase transparency in the product transfer market.
Copland says: “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.”