Loyalty to customers means nothing to lenders, the House of Commons has been told.
During a debate on unfair terms in mortgage contracts Labour MP for Brent North Barry Gardiner told MPs that “it appears that in the mortgage game, loyalty rarely pays”.
And his angry words were echoed by minister for competition and consumer affairs Dr Kim Howells who agreed that homebuyers could be in a “very vulnerable position”.
The debate saw a raft of lenders' practices criticised and was followed up by further scathing criticism from MPs.
Gardiner attacked the practice of rolling a redemption charge on top of a mortgage when an existing customer accepts the offer of a second fixed rate deal after the original fixed rate period has expired. He cited Halifax and Woolwich.
Gardiner said lenders are rely on inertia for business, saying people tend to stay put and accept what they lenders tell them .
He says homebuyers will only be able to make decisions that are in their best financial interests when mortgage contracts become transparent and if mortgage regulation comes under FSA control.
Gardiner also called for an end to tied sales operations saying they stop homebuyers finding the most suitable product for them.
Speaking after the debate fellow Labour MP for Waveney Bob Blizzard also said lenders try to “attract new customers rather than reward existing loyal customers”.
Gardiner added: “Lenders hook you in with a sexy deal, for example a two year fixed rate mortgage. Then they know most people will not go to the hassle of changing companies so they end up dictating the terms.”
But Halifax press officer Celia Rowland says: “Customers in this situation are buying out of one deal and going into another, that's why the redemption penalty applies. Whether they are an existing customer or not does not matter.”