Take a mortgage, for instance. The cost of a mortgage means diddly squat if the client isn’t eligible for it.
Similarly, if lenders’ service issues mean the client won’t be able to complete on a new property in time, or the funding for a deal has run out, then cost is not even a consideration.
So, it’s somewhat surprising to see the Mortgages Market Study Interim Report seeming to major so heavily on the cost of mortgages and the rather out of date viewpoint that ‘best equals lowest cost’. I was under the impression that the industry had proven this wasn’t the case a long time ago.
Helping those on SVRs
Don’t get me wrong, there’s lots to commend in the report, especially in the area of mortgage prisoners and helping those who sit on standard variable rates (SVRs) appearing either unwilling or unable to move to potentially far cheaper deals.
This is inertia or a lack of access (or both) and it’s only right and fitting that the regulator seeks to help those who make their monthly mortgage payments year after year, and yet seem to be persona non grata when it comes to remortgaging to a cheaper rate.
The regulator is considering insisting on lenders contacting those borrowers who have spent a year on a standard rate and this does seem like a small step forward.
Again, it would be helpful in such situations – as some lenders already do – to highlight the mortgage advice opportunities available to these clients but, in that regard, I’m not holding my breath for collective lender action.
Automatically on a better rate
One would also hope that, where permissible, advisers are contacting SVR clients much more regularly in order to outline their options to them.
But we have to acknowledge that a lot of SVR borrowers do not come via advisers, and that those paying higher SVR rates are effectively subsidising the highly-competitive deals lenders offer to new customers.
In other words, this might take some fundamental reappraisal work at certain lenders.
That said, could we as an industry be doing more, or do we need some regulatory action to help find a solution?
We’ve seen in areas such as energy and utilities the government legislating to ensure customers are automatically put on the ‘least worst’ tariffs when they have not signed up to a special deal and there is an argument to suggest that something similar should be undertaken in the mortgage market.
All things being equal, why shouldn’t customers automatically be put onto a better rate where their circumstances and financial situation allows?
Again, we are perhaps fighting a large machine where SVRs are a cash cow for many lenders however in terms of treating customers fairly, this approach would surely tick all the boxes.
Refocus cost fixation
We all know that cost isn’t everything – which is why it is surprising to see the regulator going back to this train of thought for mortgage customers – and advisers will know only too well the reasons why their recommendations are not based purely on cost.
However, with mortgage prisoners there is a lot to be said for providing them with a much more accessible environment; one that can bring their mortgage costs down when they are so clearly paying above the norm for their circumstances.
Perhaps the FCA could refocus its cost fixation away from wondering why some borrowers pay more than the cheapest deal available to them – it’s because there are other factors to consider.
Instead it could move to a focus on bringing the cost down for those who should be paying less, but for many reasons, won’t or can’t.
That is perhaps where the true cost argument should be concentrated.