Around 30,000 residential mortgage borrowers need help switching to cheaper deals, according to new research from the financial regulator.
In the Financial Conduct Authority’s (FCA) interim report into the residential mortgage market, it found that while competition in the mortgage market is working well for many people, it could work better for so-called ‘mortgage prisoners’.
It has highlighted the plight of around 30,000 borrowers on both repayment and interest-only mortgages who are unable to switch, despite this being the best option for them.
This is because while many of these borrowers are up to date with their mortgage payments, they took out their mortgage before the 2008/09 financial crisis and don’t meet the stricter affordability criteria to remortgage that was introduced after the financial crash.
As these customers are with authorised mortgage lenders, the number of mortgage prisoners could be much higher – around 120,000 – if those stuck on a poor deal with non-regulated firms are included.
Christopher Woolard, executive director of strategy and competition at the FCA, says that while there have been major changes to the mortgage market to ensure past poor practices are not repeated, more needs to be do help those trapped in a poor deal.
He says: “For many the market is working well with high levels of consumer engagement. However, we believe that things could work better with more innovative tools to help consumers.
“There are also a number of long-standing borrowers that have kept up to date with their mortgage repayments but are unable to get a new mortgage deal; we want to explore ways that we, and the industry, can help them.”
The FCA suggests, for example, that there could be an industry-wide agreement for mortgage providers to approve applications from existing borrowers whose most recent home loan was taken out before the financial crisis but who have not missed any payments.
Charles McDowell, Aldermore’s commercial director for mortgages comments: “In order to begin to resolve this issue, we believe the industry needs to build trust and engage with consumers. The consumer often falls victim to a lack of communication and an opacity of information. There needs to be better communication from both the broker and lender; however we recognise that the broker often has the deeper relationship with the borrower.
“From a lender’s perspective, it is important that we take an appropriate view of the risk when reviewing applications, but there is a need to a strike a fine balance between risk and flexibility, and ultimately act in the consumers’ best interest. We have seen the likes of the self-employed struggle because they do not fit the norm, and the industry needs to consider consumers’ individual circumstances before refusing a remortgage application.”
New broker comparison tools
The report found that while over three-quarters of consumers switched to a new mortgage deal within six months of moving on to a reversion rate [the standard variable rate (SVR) borrowers are switched to once any fixed deal comes to an end], “a significant minority” – about 30% – failed to find the cheapest mortgage deal.
The FCA plans to work with brokers to develop better comparison tools so that consumers can compare brokers more easily.
It is consulting on its interim findings with a final report to be published at the end of the year.
Gemma Harle, managing director of Intrinsic’s mortgage network, comments: “A major theme of the interim study and its findings is more access to information for consumers. This can only be a good thing and will mean more informed decisions. With technological advances creating such tools should be straight forward. But will require the full engagement from across the industry and specifically lenders in sharing more information on their lending criteria.”