Firms selling mortgages need to improve the advice they give to home buyers, the UK's finance watchdog has said.
The FSA has demanded higher standards from mortgage advisers
In a survey, the Financial Services Authority (FSA) found only one-third of mortgage advisory firms could prove they gave customers "suitable advice".
The FSA's study of 252 firms, including banks, building societies and financial advisers, found widespread failings.
These included inadequate assessment of customers' circumstances, poor training of staff and poor record keeping.
"We found significant failings in the advice giving processes in a number of mortgage firms," said Clive Briault of the FSA.
"Poor processes increase the risk of unsuitable advice being given.
"It is essential that firms have robust processes in place, so that they treat their customers fairly and provide suitable advice," he added.
The regulator was particularly worried that some customers were being sold mortgages without any proper scrutiny of what they could afford to repay, now or in the future.
The findings echo other research by the FSA in the course of the past 12 months.
In December, it published research into the sale of interest-only mortgages.
It found that 15% of people who took out such home loans had either weak or non-existent plans to actually repay the money.
This latest research by the FSA on the mortgage advisory process was carried out between June and October last year.
It scrutinised the 252 firms by a combination of mystery shopping, formal visits and questionnaires.
Although there were examples of good advice and good sales practice in firms of all sizes and types, generally the FSA discovered that:
- Banks and building societies had good processes in place but sometimes staff did not apply them.
- Most large financial advisers had robust processes in place but these were sometimes not followed.
- Among small financial advisers three-quarters did not have proper processes in place, leading to the risk of unsuitable advice being given.
Overall the FSA found there was scope for improvement in every area of the mortgage advice process.
It is now going to take enforcement action against several firms with the worst problems.