Reaction to the Miles review has been mixed, with many feeling it has shed little new light on the problems facing the long-term mortgage market.
In his interim report to Gordon Brown, the Chancellor of the Exchequer, Professor David Miles said there was a fixation on initial pay rates, with few considering how to manage the burden of debt in the long term.
Miles said many borrowers misunderstood the risk that changing interest rates posed, and criticised lenders for subsidising new lending through higher rates for established borrowers. For lenders to supply long term mortgages effectively and competitively, Miles said there were also funding issues to be overcome, such as the availability of competitive long-term SWAP rates and the restrictions for building societies on wholesale funding and securitisation.
Chris Cummings, director at the Association of Mortgage Intermediaries, said: “I know it is only an interim report and we have to bear that in mind, but a lot of what he was saying was reflecting back to what the market had told him.”
Cummings felt the mortgage industry, the Government and the media had done such a good job of encouraging consumers to shop around that it was hardly surprising a market led by price had evolved. In such a market the role of the mortgage broker was more important than ever, he said.
David Bitner, head of product operations at Bradford & Bingley, The MarketPlace agreed: “As UK consumers are used to hunting around for the cheapest products in most aspects of their lives, be it household goods, insurance or cars, for them to change this mindset when it comes to their mortgage will be extremely difficult.”
A cultural turnaround is needed if borrowers are to see the value of the long- term security provided by a fixed rate and lenders are not to lose out commercially. As the Council of Mortgage Lenders said: “Lenders seeking to close the pricing gap risk losing market share in an environment where competition on discounted products is so intense.”
One lender to try this approach in recent years was Nationwide. However, it lost ground to other lenders by offering a flat rate to all borrowers. It was forced back to using discounted products, but has made them available to both new and existing borrowers.
The Society said: “Nationwide Building Society supports the findings of the Miles review of the mortgage market highlighting that most lenders do not offer their best deals to loyal customers, instead using their lowest rates to attract new business. The Society agrees with Professor Miles’ conclusion that the mortgage market is not working in the best interests of consumers.”