Making the mortgage market work for you
Did you get the best possible deal with your mortgage? If you sought professional advice, then your mortgage broker will have shopped around on your behalf, getting the cheapest rate based on your requirements and financial circumstances.
But the mortgage market isn’t necessarily working well for everyone. That’s the conclusion of an interim report from the Financial Conduct Authority (FCA), who found that competition is working well for many, but could work better for some.
Within the report, the regulator identified some different ways the mortgage market could work better for some people.
The FCA especially wants to help longstanding borrowers who find themselves unable to switch to a cheaper mortgage deal. This group of consumers are sometimes called ‘mortgage prisoners’ and, despite having a good track record of keeping up with their payments, aren’t always able to access the best possible remortgage deals.
Most of these mortgage prisoners took out their home loans before the onset of the global financial crisis. Tighter lending criteria introduced since makes it harder for them to remortgage on more favourable terms.
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.”
One finding within the FCA’s interim report, which based on a market study which started in December 2016, was that more than three quarters of consumers switched to a new mortgage
deal within six months of moving onto a reversion rate. According to the FCA, this demonstrates high levels of choice and consumer engagement within the mortgage market.
The FCA also found little evidence that current commercial arrangements between firms are leading to poor consumer outcomes. However, the interim report concluded that consumers have no easy way to be confident, at any early stage in the process, about the mortgage products for which they might qualify.
This is one reason why it’s so important to work with an independent mortgage broker, who has a duty of care to work on your side, rather than work for the mortgage lender.
A qualified and experienced independent mortgage broker will be able to tell you early in process which mortgage products you are likely to qualify for, saving you lots of time searching the market for unavailable deals.
The FCA’s interim report uncovered a significant minority of customers, around 30%, who are failing to find the cheapest mortgage available for them. This is important because, if they were able to find the cheapest mortgage deal, these consumers would save up to £550 a year on their mortgage payments.
In order to make the mortgage market work better for consumers, the FCA is suggesting a range of measures. One of these steps is to make it easier for consumers to assess the strengths of different mortgage brokers. They plan to work with mortgage brokers to develop some metrics which will help consumers compare different services.
What follows this interim report is a period of consultation, before a final report is published by the FCA towards the end of the year. There will then be further consultation on the specific changes required to regulations.
Responding to the Financial Conduct Authority’s interim report into the mortgage market, Jackie Bennett, Director of Mortgages at UK Finance, commented:
“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.”
If you have any questions about your mortgage, please do give us a call.