The Financial Services Authority (FSA) has identified "significant failings" in the way many mortgage lending companies offer customers advice.
Only a third of the 252 firms the financial services watchdog scrutinised had robust processes in place to give customers suitable advice.
Common shortcomings arose in areas such as assessment of customer needs, the competence of staff and record keeping.
The FSA conducted its research through mystery shopping, direct visits and questionnaire surveys, investigating the quality of advisers, assessment of customer needs and communications with customers.
Among small mortgage network providers, more than three-quarters of firms did not have robust processes in place and the FSA remarked on clear instances where customers received unsuitable advice.
Larger mortgage networks and providers were more likely to have robust systems, but management level needs to do more to ensure staff follow them, the FSA concluded.
"We found significant failings in the advice giving processes in a number of mortgage firms," said Clive Briault, managing director of retail markets.
"It is essential that firms have robust processes in place, so that they treat their customers fairly and provide suitable advice."
Several of the firms surveyed have now been referred for enforcement action.For more information about mortgages, click here.
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