The Financial Conduct Authority (FCA) has published its interim report into the mortgage market. The FCA found that competition in the mortgage market is working well for many people. The FCA has identified a number of ways in which the market could work better for some people. The FCA’s proposals are particularly aimed at helping customers find the best-priced suitable mortgage deal. The FCA also wants to help longstanding borrowers who are currently unable to switch to a better deal, often referred to as ‘mortgage prisoners’.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, 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 show high levels of choice and consumer engagement: over three-quarters of consumers switched to a new mortgage deal within six months of moving onto a reversion rate and little evidence that current commercial arrangements between firms are leading to poor consumer outcomes.
There is no easy way for a consumer to be confident, at an early stage, of the mortgage products for which they qualify – this is a significant impediment to shopping around; a significant minority of customers (around 30%) fail to find the cheapest mortgage for them; a number of longstanding customers would benefit from switching away from a reversion rate but cannot, despite being up-to-date with payments; most took out a mortgage before the financial crisis.
The FCA has identified a range of potential ways to make the market work better for consumers. These include:
- making it easier for consumers, at an early stage, to identify for which mortgage products they qualify, to assess and compare those products and, ultimately, to take out a mortgage;
- removing barriers to innovation in the sale of mortgages, including those due to aspects of FCA advice rules and guidance;
- making it easier for consumers to assess the strengths of different mortgage brokers. The FCA intends to work with the broker sector to develop metrics to help consumers compare brokers;
- helping certain longstanding borrowers who cannot switch. The FCA intends to explore options to help these customers, for example, an industry-wide agreement to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up-to-date with payments.
The FCA is consulting on its interim findings and proposed remedies. It intends to publish a final report around the end of the year and will consult on any specific changes required to its rules.
Responding to the report Jackie Bennett, Director of Mortgages at UK Finance, 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.”
Paul Broadhead, Head of Mortgage Policy at the Building Society Association said “It is positive to see the FCA recognise that there are high levels of customer engagement in the mortgage market and that the commercial relationships between lenders and mortgage brokers broadly work. Although the study focuses on increasing consumer choice early in the process there appears to be a lack of consistency in the approach from price comparison websites. Customers are increasingly using these sites as a first port of call and it is important that they understand the breadth of the market that is covered and also the differences in how these listings are paid for – we believe that work is needed to make this more transparent. Price is one important, but not the only factor in choosing a mortgage. Mortgage brokers play a key role in identifying a number of factors that are important to a borrower before making a recommendation. It is key that borrowers fully understand the services that intermediaries offer, and the breadth of the market they cover. A broker comparison tool could be a viable solution, but to make such a tool fit for purpose, and simple to navigate for consumers, further work and analysis is required.”
“Our biggest concern is the number of borrowers that are unable to switch their mortgage once it is sold to a non-active, often unregulated entity. We are confident that building societies are making use of the transitional arrangements set out by the regulator to help their borrowers. There are many reasons for borrowers to remain on their reversion rate, such as plans to move home or because the rate is cheap. Nevertheless, the BSA will continue to work with FCA on their proposal for an industry-wide agreement for an internal switch for all customers meeting certain criteria.”
“Ultimately, the mortgage market is a highly competitive environment which is working in favour of borrowers, with record low mortgage rates. Building Societies provide real competition in the market by offering niche mortgages alongside standard products. First-time buyers, the retired, the self-employed or those with more complex needs will find a mortgage to suit them at a building society.”
“While the market does work well for the majority of borrowers it is important that the industry adapts to evolving customer needs, including through the use of technology.”