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FCA to consult on changes to mortgage switching process

  • 10/03/2020
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FCA to consult on changes to mortgage switching process
The Financial Conduct Authority (FCA) will consult on changes to the mortgage switching process after research found that there was a case for intervening to help borrowers do so.


The regulator plans to release a consultation paper in the second quarter of this year, with a final policy statement and any rule changes coming by the end of the year.

Its research found that brokers had a positive effect on borrowers’ propensity to remortgage at the end of their fixed rate period and not to end up on the reversion rate.

In contrast, those who went through lenders were more likely to end up on higher reversion rates and less likely to remortgage to another lender.

Remortgaging internally could typically save borrowers around £2,324 per year from the reversion rate while those who remortgaged externally saved on average £2,620 per year.


Possible remedies

The regulator said consumer research found effective remedies would need to:

Engage consumers in the switching process
While many of these consumers were aware of the switching process, around 40 per cent had never considered switching with their current lender. Also, only one in five recalled being contacted about switching or renewing their mortgage deal.

Set out the case for switching
On average, these consumers say that a monthly saving of £120 would encourage them to switch mortgage. Their main consideration is getting the best deal for them personally including getting information on potential savings and reassurance about the other barriers in the switching process.

Give individuals enough of the right information
This should be provided without overwhelming them and causing them to disengage.


Vulnerable consumers miss out

The work follows a Citizens Advice super-complaint to the Competition and Markets Authority (CMA) about the loyalty penalty where some longstanding consumers pay more than existing consumers in a number of markets including mortgages, cash savings and home insurance.

“Our research found the factors that contribute to the decision not to switch include a lack of time, a fear of the application process and, for many, relative contentment with their current lender or deal,” the FCA said.

“The consumer research also suggests that consumers could become better engaged with the switching process if given the right information at the right time.

“We also found that consumers that do not switch, as is the case for most mortgage borrowers, are less likely to be vulnerable compared to the general population.”


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