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Are direct-to-consumer product transfers legal? – JLM

by: Rory Joseph (director) and Sebastian Murphy (head of mortgage finance) at JLM Mortgage Services
  • 05/10/2017
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Are direct-to-consumer product transfers legal? – JLM
When you’re talking about a part of the mortgage market potentially responsible for up to £100bn of gross lending it’s perhaps no surprise that lenders take product transfers incredibly seriously.

Indeed, as mortgage advisers so should we.

As the Association of Mortgage Intermediaries (AMI) recently suggested, the vast majority of that £100bn goes direct to lenders and there are all kinds of issues to be dealt with because of this.

In particular, how do product transfers fit into a regulated advice marketplace – specifically how some lenders go about securing this type of business and whether we can say with any certainty that it’s Mortgage Market Review (MMR) or Treating Customers Fairly (TCF) compliant.

 

Breaching rules

Let’s be upfront about this, some lenders conducting this type of business, communicating directly with borrowers and offering them product choices at the end of their term are doing so on a non-advised basis and appear to breaching the rules.

As advisers, when it comes to product transfers we conduct full fact finds and financial reviews ensuring proper care and due diligence is provided. In contrast the lender is able to send those same borrowers a set of options with a tick-box next to them, in order to secure the repeat business.

Not only are we all aware of this, but the client is likely to be completely unaware that:

by ticking such a box and making such an agreement, they are forfeiting all the protections they would receive by using a qualified mortgage adviser;

they are effectively signing up to a two-tier system, putting themselves at risk.

This has the added ingredient that they will probably have no clue whether that specific product is right for them now, or over the course of that deal as their circumstances potentially change.

 

Worrying state

Of course, we also know that these product offers will often be at very different rates to what might ordinarily be available through that lender direct, or even via us as the intermediary.

They may indeed look very attractive on paper but without that full fact find and a full understanding of the client, what are they really signing up for?

It is a very worrying state of affairs because of the significant amounts of lending currently being written on this basis, where lenders are aggressively pursuing clients to transact direct with them.

It appears that the notion of ongoing, professional advice is being at best, paid lip service to, and at worst, is being jettisoned in order to get the client re-signed as quickly as possible without any proper advice being provided.

 

Detaching borrower and adviser

We hope that for the sake of the consumer, the regulator recognises the potential detrimental threat to them and moves swiftly to make sure what appears to be the practice of non-advised selling is halted.

This is a huge market which some lenders shouldn’t feel that they can hijack through clever technology and tempting headline rates.

Mortgage providers who plan to detach the borrower from professional advisers, and the much-needed expertise they provide, should definitely review these plans before they repeat the mistakes of the past again.

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