The Financial Conduct Authority (FCA) says there is a case for intervening to help mortgage customers who do not switch.
The research found the factors that contribute to the decision not to switch include a lack of time, a fear of the application process and, for many, relative contentment with their current lender or deal.
The regulator said that consumer research also suggests that consumers could become better engaged with the switching process if given the right information at the right time.
The FCA also found that consumers that do not switch, as is the case for most mortgage borrowers, are less likely to be vulnerable compared to the general population.
The research found that those not switching:
- Had an average income of around £46,600 per year. Households that switched had an average income of around £50,900 if they switched internally and £58,700 if they switched externally
- Lived in areas that are neither particularly deprived nor particularly affluent. The Index of Multiple Deprivation (IMD) ranks every small area in England from 1 (most deprived area) to 32,844 (least deprived area). The median IMD of borrowers on reversion rate was around 16,000, which is close to the median for England of 16,422. The IMD for those who switched is slightly higher: around 18,200 for internal switchers and 19,600 for external
- Were more likely than those who switched to be older. Their average age was 36 years old and 90% of them were 50 or younger
- Were more likely than those who switched to have a mortgage in the name of a single borrower
- Were less likely than those who switched to have used a mortgage broker to find their initial deal
Based on its research, the FCA has considered a range of different remedies and intend to consult on our proposed response in the second quarter of 2020.
Karen Noye, spokesperson at Quilter, said: “It is a great time to remortgage at the moment, with so many good deals on offer. We remain in an era of incredibly low-interest borrowing and if you don’t shop around you could be missing out on the best deals available. Not only are many lenders offering extremely competitive rates, but there is also the opportunity to fix for a relatively long time at a low rate. Many people have taken advantage of the low interest rate environment to lock-in to a favourable rate of interest in order to give themselves a sense of certainty and security.
“This data shows that customers that took out a mortgage through an adviser are more likely to remortage at the end of their term, whereas ‘DIY’ borrowers tend to be more likely to roll-over onto the SVR. A willingness to search out a better deal keeps mortgage lenders honest and ensures a healthy, competitive market. Interestingly, there isn’t a huge gap in the household earnings of ‘switchers’ compared to ‘non-switchers’. This implies that the problem is common across households up and down the country within different earnings levels, and isn’t isolated to high earning households that don’t see the value in getting a better deal.
“Sadly, a lack of shopping around and switching is a familiar theme. In other financial markets, most notably in the retirement market, evidence shows that consumers often struggle to shop around for the best deal. This caused major problems in the annuity market, and continues to be a challenge in the drawdown market, where non-advised customers often stick with their incumbent pension provider instead of switching.
“Similarly, there has been a lot of work done to encourage bank account switching over fears that consumers were not getting the best deal for them. And there is a lot of publicity around the importance of holding general insurers’ feet to the fire every so often to ensure you’re getting the best rate. In the case of a mortgage, it is the biggest single expense for millions of households and getting the best rate available by shopping around at the end of your term is crucial.”
