The MS16/2.2 study revealed many ‘less-active’ customers remained on a reversion rate for more than six months despite being able to switch product, said the regulator.
Overall, engagement is high. Over three quarters of consumers switch within six months of moving on to a reversion rate.
However, the FCA is setting its sights on mortgage prisoners who may be barred from the market for a variety of reasons.
Although the FCA said the regulatory position is a ‘matter for Parliament’ it is very concerned about the inactive borrowers of unregulated, closed book lenders but will begin discussions with government, relevant firms and consumer groups.
These firms do not offer mortgage products and are not obliged to submit market data to the regulator making the extent of the problem unclear.
However, the regulator estimates there are 260,000 accounts in mortgage books owned by firms not eligible for lending, with many benefiting from relatively low legacy tracker rates, with 35% on average rates of between 2.25% and 3.25%.
Equally, around 120,000 borrowers are paying an interest rate which is greater than the FCA’s benchmark rate of 3.69% (the lowest SVR in H2 2016) and could benefit from switching.
Some of these may be unable to switch if they do not meet the lending criteria of active lenders, said the FCA, adding: “We cannot currently estimate how many. We understand that around 20,000 are in arrears.”
Releasing the prisoners
Analysis in the wider study revealed around 30,000 customers on a reversion rate with firms authorised to lend, often termed ‘mortgage prisoners’, would benefit from switching but, despite being up to date with payments, cannot. The majority of these are interest-only borrowers with loans taken out before the financial crisis, left marooned by tighter, post Mortgage Market Review (MMR) lending practices such as affordability checks.
The FCA said it was concerned and would explore options, but said a universal active lending industry agreement to accept these 10,000 or so solvent but trapped borrowers could be helpful.
Habito’s CEO and founder, Dan Hegarty, said: “This important study shows that millions of consumers are still paying too much for their mortgage.
“The innovation answer they are calling for sits in the better use of technology. Only technology can analyse the 20,000 mortgages on the market in seconds – making it easier for customers to find the needle in the haystack that is the best deal for them.”