The latest member survey from the Intermediary Mortgage Lenders Association (IMLA) has found that plans to shorten the procedure for switching mortgages to just seven days have little chance of being implemented effectively.
IMLA says this suggests the remortgage market is nonetheless set to prosper without major reform.
81% of lenders and 66% of brokers said that the plans to help customers remortgage within a week are unlikely to work. The research also suggests that few within the industry feel that the proposed changes to mortgage switching are a good idea.
Among lenders, 59% believe that seven-day switching is a bad idea and just 22% believe it is positive. Brokers are slightly less cynical about whether consumers will benefit from the potential reform, but 41% say the proposals are a bad idea, with just 33% saying they are welcome.
Lenders and brokers both identified several reasons as to why these proposals are likely to run aground. When asked what difficulties the changes could cause, 78% of lenders identified delays getting valuations, 70% cited difficulties fulfilling risk and regulatory requirements, and 44% said affordability checks will take too long.
Brokers singled out fulfilling risk and regulatory requirements as the principal difficulty in consumers switching loans within a seven-day window (78%), followed by automated valuation models being inaccurate (37%).
The Department for Business, Innovation and Skills (BIS) announced in May that it was looking to shorten the time it takes consumers to switch between mortgage deals to just seven days, and launched a consultation into the process. The proposed measures were a part of its proposed Digital Economy Bill, which also includes provisions to shorten how long it takes consumers to switch mobile phone and broadband deals.
IMLA says this potential move mirrors the government’s decision to shorten customers’ switching of current accounts to seven days in 2013. However, the mortgage industry’s reaction to the announcement has been lukewarm so far, it said. In its own response to the consultation, the Council of Mortgage Lenders (CML) raised concerns over the lack of clarity about the point at which the seven-day countdown would begin; the significant size and value of a mortgage product; and the fact that around 10% of borrowers successfully remortgage every year as it is.
IMLA’s own research also revealed that lenders and brokers both view remortgaging as the area of the market that has the best future potential for growth for the remainder of 2016. A total of 59% of lenders and 43% of brokers predicted the remortgage market would set the pace during H2 2016, relegating the first-time buyer market – tipped for the greatest growth prospects in H1 2016 – into second place this time around.
The findings are backed up by the latest CML data, which showed remortgage lending has expanded significantly over the past 12 months, with August’s £5.9bn of gross remortgage lending standing 41% higher than a year earlier.
Peter Williams, executive director of IMLA, said: “These findings show that the industry is clearly sceptical about the chances of the seven-day switching scheme being implemented effectively in the mortgage market, and whether it will indeed benefit consumers. The continued strength of lending would certainly suggest that consumers are not shy in coming forwards to remortgage under the current rules of engagement, which aren’t standing in the way of favourable rates and strong competition.
“Lenders and brokers both agree that balancing key parts of the approval process – such as getting valuations and fulfilling risk and regulatory requirements – will be difficult to reconcile with reducing switching time to just seven days. It is clear the industry believes reducing mortgage switching to such a short window is incompatible with responsible lending practices.
“While consumers may benefit from being able to switch a bank account or broadband provider in a short timeframe, the fact is that a mortgage is a much more significant purchase. It is important that the lending process makes adequate checks to support positive consumer outcomes, and it should therefore not be rushed.”