Malcolm Davidson, managing director of UK Moneyman, said this was a common issue evident by the engagement he received on social media posts about it.
“I put it on [social media] once a year or so – I always get loads of responses,” he added.
He said most borrowers likely completed a product transfer independently with few problems, but for those who made mistakes the consequences were dire.
Davidson has called for the execution-only process to be scrapped or for lenders to mandatorily ask customers to consider independent advice.
Andy Lawrence, mortgage and equity release adviser at ALL Financial Advice, said these mistakes could be because borrowers do not understand or check mortgage terms and conditions.
He said as lenders were getting in touch with clients before brokers offering attractive rates and waived early repayment charges (ERCs), this created a sense of urgency.
Lawrence’s firm has a client retention rate of 95 per cent but of those lost to lenders, some returned with complaints about the terms of their self-selected mortgage.
Client cases
Some brokers claimed to see five regretful clients a year and others said as frequently as one per month.
Davidson said his most recent example was a client who switched even though they knew they were separating from their partner. They did not realise refinancing would trigger a £10,000 fine once the property had sold.
He said: “They told me they are putting in a complaint but against who? Themselves?”
Another client was offered to switch early with no ERCs. Davidson said: “I just don’t think that’s fair. That’s not a level playing field for brokers if they waive the ERCs. We missed the remortgage opportunity with that particular customer.”
The client got back in touch a few months later, now pregnant and wanting a further advance to build a bedroom.
“The lender in question declined the further advance. And that led to a £3,000 early payment penalty when they got me back involved to remortgage,” he added.
Lawrence said he had seen a case where a client had been invited to switch five months early to enter a five-year fix at 2.64 per cent.
The client’s equity put her at an exact loan to value (LTV) of 80.12 per cent, meaning if she made one more repayment, she would have fallen below the 80 per cent tier and qualified for a cheaper rate of 1.89 per cent.
Lawrence said: “Just by waiting literally a couple of weeks to take her into the new month, we basically saved £3,206.51 a year, which meant over the five years, the saving in total was £16,032.56. She was like, ‘Well, why didn’t the lender make me aware of that?’ and I’m saying, ‘you’re not getting advice from the lender’.”
Mike Roberts, independent financial adviser and Helen Bowsher, independent mortgage adviser at Penny Matters, said they were constantly having to deter clients away from unsuitable decisions.
Roberts spoke of a client who had to be stopped at least three times from going direct as they wanted to move in the future and their circumstances would no longer fit criteria.
Bowsher said another self-employed client had transitioned from being a sole trader to a limited company and did not have enough history of being the latter to satisfy lenders.
She recently advised other clients against refinancing onto a lower priced product without a consent to let aspect, as the lender loaded such changes with fees.
“I said to the client, ‘I know this mortgage is more expensive, but in the future, it’s going to fit your needs’,” Bowsher said.
Borrower misunderstandings and ease
Brokers were finding borrowers also did not know that going direct meant cutting their adviser out.
Lawrence said he had clients apologise to him after conducting an execution-only transfer because they assumed he would be paid for the business.
Bowsher and Roberts said others saw the mortgage loans as theirs to use how they wished, not realising they would need to be reassessed if circumstances changed.
Execution-only products requiring less documentation and checks also had an appeal, brokers stated.
This plays into the ease with which modern consumers select financial products online. However, penalties attached to other poor choices were much less significant, brokers added.
Lawrence also raised concerns about consistently breaking a fixed term early.
He said: “What we’re trying to make the client aware of – especially if they paid £1,000 worth of arrangement fees – is by switching early, say six months on a two-year fixed rate, you’re losing 25 per cent of your fixed rate.
“If they keep on doing that, every couple of years over four remortgage transactions, they’ve lost two years in total, which they’ve paid for each time. So, it’s not always right.”
Rob Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI), also raised concerns on this saying: “There’s normally a reason that the broker has put them into that particular product after giving advice.”
He said breaking early could be seen as giving bad advice if done by an intermediary.
Broker responsibility and caseload
Allowing borrowers to refinance with minimal advice signalled a move away from the intentions of the 2014 Mortgage Market Review, brokers said.
Davidson said: “In my opinion, the broker community has let down consumers by not being vocal enough on this matter. I think the majority of us do agree that there are some borrowers out there that need to be protected from themselves and whilst I can definitely see the argument, I still believe the non-advised sale flies in the face of the spirit of the Mortgage Market Review.”
Lawrence wondered why brokers should be left to clean up the mess.
He added: “I often say to my clients ‘I’m quite happy to re-engage with you, but what I don’t want is two years down the line, you go back direct to the lender and create another mess’.
“Because all we’re doing is being troubleshooters.”
However, all agreed that consumers should have the freedom to make financial decisions independently within reason.
Lender responsibility
Lenders should do more to urge borrowers to seek advice if their circumstances change, brokers said.
John Ahmed, managing director of Movin Legal, added: “If [lenders] have had a client sent to them by a mortgage adviser or regulated individual, they should not be allowed to do a product transfer until that individual is sent back to the adviser.
“Then the adviser should reassess and see if an [independent] transfer is suitable.”
Bowsher said some were already doing this in written communications.
Mortgage Solutions contacted some lenders to find out what the execution-only process looked like.
Santander approaches borrowers three to four months ahead of their fixed term ending.
A spokesperson said: “These letters advise customers that they can follow an execution-only process, speak to us directly or work through a broker – the mortgage products available are the same regardless of the channel they use.
“This letter includes a detailed Q&A running through what a customer can do if they want to change their mortgage in anyway.”
Any customer choosing a mortgage online is asked to call Santander if changes could occur within the next six months such as additional borrowing, moving home or overpayments.
It also tells them that choosing mortgages online means the suitability has not been assessed.
The bank displays penalties charged if the term is ended early or overpayments are made.
Borrowers have 14 days to consider all mortgage offers, advised or execution-only, and Santander’s advisers are on hand throughout the application.
Barclays said a mortgage information sheet was provided setting out the terms of the product, as this is legally required.
Customers can speak to a Barclays adviser if they have questions, the bank said.
Barclays said it was mandatory to ask borrowers about a change in circumstances and customers are bound to the terms of the mortgage from the day it completes. However, they can change their mind up until that point.
Santander said it did not see an increase in complaints relating to execution-only and both banks said they had complaints processes in places should borrowers need them.
