The council of the BSA will decide whether to press for the penalties - which penalise borrowers for redeeming mortgages before a set period - to be outlawed under the new mortgage code.
If the proposal were accepted, "cashback" mortgages, which offer lump sums up front in exchange for a lock-in, would no longer be sold to new customers. Those fixed-rate mortgages which lock customers in after rates have ceased to be fixed would also be affected. Discounted mortgages, which offer rates up to 1.5 per cent lower than normal for the first one or two years, would also be affected.
The BSA claims the penalties, which typically amount to 5 per cent of the remainder of the loan, confuse customers and distort competition by locking them into a particular lender - no matter what rate is offered.
A spokeswoman for the BSA said there was a question over whether it was fundamentally unfair to lock customers into a lender which was free to change its rates at any time.
"We are considering calling for a ban on all redemption fees on variable rate loans," said the spokeswoman. She added: "Is it fair that the lender can vary interest rates when the customer is locked in?"
The BSA claims many lenders are taking an up-front loss on the new mortgages, while existing savers and borrowers suffer poorer rates. They also say borrowers can suffer "payment shock" when a fixed-rate period ends and they are locked into an interest rate which could cost twice as much.
The BSA acknowledges that it will need the support of banks if the proposal is to become part of the mortgage code, which came into force on 1 May. Banks will debate the issue at a meeting of the Council of Mortgage Lenders next month.
The debate over redemption penalties comes amid an intense mortgage price war in which customers are being lured away from their lenders with the offer of discounts, cashbacks and fixed rates.
Of the pounds 77bn lent out last year, 41 per cent was in fixed rate mortgages. Of the remaining 59 per cent in variable rates, the overwhelming majority include some form of discount or cashback.
Mortgage brokers, however, are suspicious of the BSA's moves - with one referring to it as "the thin end of the wedge of price-fixing". They fear lenders are backing away from stiff competition on the high street which has brought unprecedented benefits for the consumer.
Chris Scales, director of the Mortgage Guild, a 200-strong association of mortgage advisers, said: "We are against any form of cartel, either in price or product fixing, which could be used to the detriment of the consumer."Reuse content