The FCA has found that competition in the mortgage market is working well for many people, but has also identified “a number” of ways in which the market could work even better for some people.
In its interim report into the mortgage market, the regulator has proposed a number of innovations that are “particularly aimed at helping customers find the best-priced suitable” mortgage deal. It has also stated that it wants to help those longstanding borrowers who are “currently unable to switch to a better deal”, commonly referred to as ‘mortgage prisoners’.
FCA executive director of strategy and competition Christopher Woolard said: “The mortgage market is one of the largest financial markets in the UK and there have been significant changes to the market since the financial crisis in order to ensure that we do not return to the poor practices of the past.
“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’s interim findings revealed that over three quarters of consumers have switched to a new mortgage deal within six months of moving onto a reversion rate. However, it also found that there is “no easy way” for a consumer to be confident, at an early stage, of the mortgage products for which they qualify, resulting in around 30% of customers failing to find the cheapest mortgage deal for them.
Furthermore, the findings illustrated that there is a number of longstanding customers that would benefit from switching away from a reversion rate but are unable to do so, despite being up-to-date with mortgage payments, as most of them took out a mortgage before the financial crisis.
As a result of the findings, the regulator has identified a range of potential ways to help and support those with a mortgage, such as removing barriers to innovation in the sale of mortgages, including those due to aspects of FCA advice rules and guidance. It also wants to “work with brokers” in a bid to make it easier for consumers to assess the strengths of different mortgage brokers, by developing metrics to assist in the comparison of brokers.
In order to help ‘mortgage prisoners’, the FCA intends to explore options, including the introduction of an “industry-wide” agreement to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out prior to the financial crisis.
Responding to the FCA’s interim mortgage report, UK Finance director of mortgage Jackie Bennett said: “Today’s interim report highlights that, in the main, the mortgage market is working effectively for the vast majority of borrowers. The industry is committed to lending responsibly and ensuring that competition in the market works to the benefit of all customers.
“We note the FCA’s points regarding perceived areas of weaknesses within the market, particularly around customers who currently may be unable to switch products. We will be working through the FCA’s recommendations and continuing to engage closely with the regulator over the coming weeks as we respond to the consultation.”
Aldermore commercial director of mortgages Charles McDowell also commented on the findings, stating that he is "pleased to see" the subject of reversion rates and 'mortgage prisoners' being one of the "areas of focus" within the review and "wholeheartedly" agrees that this topic needs to be investigated further.
"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," McDowell stated.
"We look forward to working closely with the regulator in the next phase of their review.”
The regulator has announced that it is consulting on its interim findings and proposed remedies, and it intends to publish a final report around the end of the year.
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