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Third of borrowers miss out on cheapest mortgage – even after seeing a broker – FCA

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  • 04/05/2018
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Third of borrowers miss out on cheapest mortgage – even after seeing a broker – FCA
Almost a third of borrowers fail to get the cheapest mortgage, costing them £550 a year on average, regardless of whether they seek broker advice, the Financial Conduct Authority (FCA) found in its interim report of its Mortgages Market Study.

 

It should be easier to search for the right deal earlier in the mortgage process with more tools available upfront to help both consumers and advisers, the regulator said.

Borrowers struggle to shop around for the best mortgage because there is no simple way to find out which products they qualify for upfront, according to the report.

And even those who seek advice, which is the majority of borrowers, typically find there is little difference on the cost of the mortgage.

At the same time, there are around 120,000 people on reversion rates, who could save money by switching but do not – or cannot, the FCA found.

Scrapping some regulatory advice rules and guidance could remove some of the obstacles currently preventing innovation in the sale of mortgages and help the development of more search and switch deals, according to the interim report.

The regulator is now set to work with lenders, intermediaries and mortgage sourcing systems to find how the market could develop tools that better indicate qualifying products for a borrower, ahead of its full report that will be published at the end of year.

The FCA said it will look at whether lenders should make eligibility and other qualification criteria widely available at an earlier stage.

Cheapest not always best

 

However, brokers suggested the regulator was wrong to focus on consumers getting the cheapest mortgage.

Andrew Montlake, director at broker Coreco, said: “The cheapest does not mean the best or most suitable and there are a myriad of other things to take into account such as service, fees, flexibility and of course lending criteria.

“Brokers do get the most suitable product for consumers taking into account both hard and soft facts, spending time to really understand their needs not just now but in the future.

“Chasing the cheapest rate and disregarding everything else can ultimately lead to the wrong consumer outcomes.”

Dan White, managing director at broker White Financial Services, added: “You may have a market leading rate that calculates to be the most cost effective over a fixed rate term, for example.

“However, that particular lender may have a processing turnaround time of one-two weeks before they even assess the case, let alone request additional information, which then goes back into a queue.

“That mortgage then takes 3/4/5 weeks to be offered on a purchase, but the buyer has now lost the property because they agreed a quick exchange, does that rate still apply as the ‘best deal’ for the client?”

 

Next steps

 

The regulator is now set to work with lenders, intermediaries and mortgage sourcing systems to find how the market could develop tools that better indicate qualifying products for a borrower, ahead of its full report that will be published at the end of year.

The FCA said it will look at whether lenders should make eligibility and other qualification criteria widely available at an earlier stage.

The reported added: “This could build on some recent innovation, should assist existing intermediaries, and also create other opportunities for new online tools.”

The regulator also said it had observed links between more expensive mortgages and intermediaries that typically place business with fewer lenders.

Overall, the FCA’s interim report found the mortgage market is working well, but falling short in some specific areas.

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