Habito’s research suggested that 55 per cent of customers could save money by switching mortgage ahead of their fixed rate deal term-end.
“We’re calling for mandatory notices from all mortgage lenders, starting at four months ahead of the initial period ending, by text and email. People should not be penalised for loyalty. They need the right information about the mortgage at the right time in order to make the right choice,” said Daniel Hegarty, founder and chief executive at Habito.
The firm proposed what it called the “4 Months’ Notice Pledge”, designed to stop borrowers from “paying over the odds by lapsing onto their lender’s standard variable rate (SVR)”.
Habito spoke by livechat to customer service representatives from the top six mortgage lenders by market size. Based on these conversations, it claimed: “One lender commits to giving their customers three months’ notice, half try to notify customers before the end of the term usually, with a letter in the post, one waited until one month prior and one gives no notice.”
However, other brokers were underwhelmed by the findings.
“Anyone who doesn’t do that already is an idiot—and you can quote me on that. Most lenders start a contact programme anywhere between six to three months out. I can’t imagine getting to a point at three months where the lender hasn’t been in contact,” said Peter Brodnicki, co-founder and chief executive of Mortgage Advice Bureau.
“It shouldn’t even be that late really. Bearing in mind that brokers are advising on five-year fixed rates at the moment. Four months out—so that’s after four years and eight months you’re contacting them—I’m sure they’ll be delighted if they can remember who you are.”
Brodnicki argued that the market had significantly changed over time and particularly since lenders opened up product transfer offers to the intermediary market.
He said: “Whereas before, lenders would leave a mortgage and let it slip into an SVR, now they are being proactive and therefore the broker has to be proactive too. If the lender is starting that comms strategy and the broker doesn’t, the broker will be excluded.
“Any broker worth their salt will have a contact strategy that starts at four months or before. It’s just common sense,” he added.
Product transfer options
David Hollingworth, London and Country Mortgages, associate director, communications agreed that “lenders have become much more proactive in their retention strategies. It’s likely that the lender is getting in touch and giving them some product options that they can switch to.
“For brokers it’s a case of highlighting the fact that in many, many more instances now you can take into account the existing lender with a product transfer option. And in most cases, brokers can put those into place for the customer.
“The customer is getting the cross-market viewpoint that they wouldn’t get if just going straight to the lender.
“It used to be a lot more secretive,” Hollingworth continued.
“You didn’t know what the lender would offer your customer. They might offer something and they might not, it might be competitive, it might not. Whereas now there is much more transparency around what they are offering.
“We get in touch about six months out to notify customers that they’re coming toward the end of their deal. And then at about three-and-a-half months we suggest speaking to us to assess their options.
“If you go back 15 years, the lender’s offer to existing customers was often SVR, take it or leave it. That approach now feels outmoded. To move from there to a market where lenders are offering their retention products through brokers as well — it has come on in leaps and bounds.
Hollingworth added that product transfer could be “invaluable” particularly for mortgage prisoners because they don’t have to go through affordability checks and that some lenders were “even offering transfers to existing borrowers in negative equity.”
However Dominik Lipnicki, director, Your Mortgage Decisions, suggested that the market would benefit from “more thought” going into how options are communicated to customers.
“We see far too many clients who have simply changed from one two-year fixed to another, with very little planning. We know that most clients are driven by monthly costs but we also know that in the medium term, these decisions can be detrimental to the financial planning.
“When a scheme is coming to the end, clients should consider not only what scheme to choose next but review the mortgage term as a whole, as well as associated protection policies. My fear is that just giving clients more notice of a scheme coming to the end will not necessarily mean that a full review is provided.”
Habito was unavailable to comment further at the time of writing.