The six-month-old regulator has begun an investigation into whether ‘teaser rates’ for savers, which may later revert to a much less attractive rate, are an effective form of competition.
Grant Thornton Financial Services Advisory partner Ewen Fleming said the emphasis on pricing could spread to mortgages as well: “It is really going to drive a very different way of looking at the business. Is it a fair profit margin you are taking? How will that fit into pricing products? I will be very interested to see how it will feed into the pricing differential you find in back books.”
Rewarding existing borrowers could make them less motivated to remortgage, he added: “It is that transactional element that focuses people to go back into the market to change the mortgage. But if it is fairer pricing people will tend to stick with it.”
Lenders were increasingly relying on intermediaries in the run up to the Mortgage Market Review, he added, but some were also investing in video technology in order to speed up branch-based advice.
Fleming, who advises banks on their retail services, said the focus on fairer pricing could lead banks to differentiate themselves in other ways, such as linking more financial products. This could mean a bank with a supermarket branch rewarding loyal mortgage borrowers with shopping discounts, or linking two financial products.
The Financial Conduct Authority, which replaced the Financial Services Authority earlier this year, has stressed its plans to be more proactive in dealing with conduct risk.
Introducing the regulator’s study into teaser rates, chief executive Martin Wheatley said: “Promoting effective competition and ensuring that markets work well for consumers is a key objective for the FCA.”
He said the research aimed to provide a better understanding of the way markets worked: “In looking at cash savings, we will examine an area that affects most people and see if there is action we need to take. This is exactly the sort of area I want the FCA to be operating in.”
