In its newly published interim report into the mortgage market, the Financial Conduct Authority (FCA) has found that competition in the mortgage market is working well for many people.
The regulator 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; but
- 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; and
- 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.
Gemma Harle, managing director of Intrinsic’s mortgage network, said: “A huge proportion of the population engage in mortgages, which accounts for over 80% of total UK household debt. It’s crucial this market works effectively for all and it is encouraging that the market study has found that for the vast majority it does.
“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.
“However, throughout the paper the focus was on price and the tone suggests that cheaper is almost always better. This ignores some of the complexity of mortgages. Parts of the population, such as the growing self-employed population, need flexibility, which can come in a variety of forms. Recognising this and choosing an appropriate solution requires an expert.
“The proposal to extend which mortgages qualify for execution-only mortgage is well meaning, but could unintentionally lead to lower standards and heighten the risk of mis-selling or buying of inappropriate products. The thinking behind this proposal seems motivated by the fact that advisers aren’t leading to cheaper lending. However, the value of advice is not solely cost.
“The study also found that online advice may be the key. This is something the industry should look at and the mortgage advisers may be the perfect testing ground for such innovation.
“It is right that mortgage prisoners are taken into consideration. The mortgage market has advanced substantially since pre financial crisis and customers should not be locked into products that may no longer be suitable. The concern is that the information the regulator is using may now be out of date. The Mortgage Market Study has been a long time coming, first pitted in 2015, with a call to evidence in 2016.
“A mortgage is often the first big financial decision that people make. Unlike savings or insurance, which you can review or alter regularly, mortgages are a long term financial commitment. With interest rates on the rise, that commitment is going to get even steeper. A decision such as this needs careful thought and is often aided by a professional adviser that understands the nuances of the market place.”