"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"
The unreported product transfer market is a "ticking time bomb" for mortgage holders, warns TMA mortgage club, as millions of borrowers are at risk of waiving their right to full personal liability protection if they switch through a product transfer.
TMA is urging lenders to report when they are approaching borrowers ahead of the expiration of their mortgage to reduce the risk of borrowers transferring to an unsuitable product.
The club says lenders are increasingly incentivising clients on their books to transfer their current mortgage to a new product by waiving early repayment charges and offering lower monthly payments.
However 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.
Currently, product transfers are not recorded as separate to remortgaging transactions, making it difficult to assess how often they take place. For instance, remortgaging statistics are recorded in industry gross lending figures whilst product transfers are not.
That said, recent estimates suggest the product transfer market is worth over a £80bn a year. TMA believes it has skyrocketed since the implementation of MMR 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.
David Copland, director of TMA mortgage club, said: “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.
“The risks of this continuing unreported are extremely concerning. Not only because the product transfer market is increasing, but because millions of people are putting themselves at risk of switching to a mortgage which isn’t right for them. As we all know, this could have serious implications for the underlying strength of the mortgage market.
“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.”