Letters from the UK’s biggest banks to the Treasury Select Committee have revealed that between two thirds and three quarters of borrowers remortgage with the likes of Barclays, HSBC, Natwest and Lloyds Banking Group.
The committee is investigating the level of competition among banks, and has quizzed the Financial Conduct Authority (FCA) on whether this level of business is as it would expect.
Brokers said this proportion chimed with their own experiences, noting that to some extent this level of business is inevitable given the “deep pockets” and greater profile of high street lenders.
However, there were warnings that opting for the apparent ‘safe’ option of sticking with a high street name could have a sting in the tail for borrowers, with broker communication crucial in ensuring clients do not end up on an expensive or inappropriate product.
Big brand domination is no bad thing
Martin Stewart, director of London Money, said his own firm’s data suggested around 80 per cent of lending went through the top lenders, and added: “For most holistic, vanilla brokerages I would be surprised if those numbers differ wildly.”
Stewart said this was down to the push for volume among the big names, noting that “those with the deepest pockets tend to win out in the end”.
According to Stewart, there is nothing to be done to change this breakdown, since the mortgage sector is an “open and free market”.
He continued: “It would be like suggesting Amazon needs to be curtailed to help save the corner shop. As long as the consumer wants access to cheaper money in large volumes then we will have a market that plays into the hands of the big lenders.”
The safe option
Jane King, mortgage adviser at Ash Ridge Private Finance, said it was somewhat inevitable that high street banks would enjoy such a large proportion of the remortgage business, since “they have the resources to launch huge marketing and advertising campaigns”.
In addition, King noted that there is a “mistaken belief” among many that they will get special treatment if they go to their bank for a mortgage, as well as a perception that they are more secure than the competition.
“Challenger banks and internet lenders are either unknown or perceived to be less secure, even when you explain that they all fall under the FCA regulations,” King continued.
Dominik Lipnicki, director of Your Mortgage Decisions also pointed to the influence of current accounts, and the fact that some borrowers simply feel more confident going to a brand with an “established name”.
Jo Payne, mortgage broker at Mesa Financial, said lenders are “really efficient” when contacting clients whose rates are due to expire, and are now contacting them even earlier than in the past, which is boosting their remortgage figures.
Payne noted that with so much uncertainty around at the moment ‒ and not just within financial services ‒ some people will also “like to stick to what they know and what they are comfortable with”.
Passing affordability
The cost of living crisis will have an impact on the attractiveness of high street banks, according to Lipnicki. He noted that affordability tests become more of a challenge when finances are stretched, meaning that for some borrowers swapping is simply not an option.
“The more difficult the economic conditions are for borrowers, the more will stay with their existing lender,” he added.
Samantha Bickford, mortgage and equity release specialist at Clarity Wealth Management, noted that borrowers consider their urgent need now, to secure a new mortgage deal, without necessarily thinking about their long term circumstances.
She continued: “I often have borrowers come to me tied into a five-year fixed rate deal, desperate to get out of this deal, due to change of circumstances, moving home etc and they tell me that they didn’t think of the early repayment implications when they secured the five-year fixed rate period.”
Doing the right thing
The reality is that high street lenders “tend to offer the best rates and are generous with their lending criteria”, according to Payne, which is why brokers may find they recommend them more frequently.
This was echoed by King, who said: “In many cases they do also offer the most attractive rates and so often using them is the right thing to do.”
The dangers of domination
Defaulting to high street lenders can come with a financial penalty though, with Lipnicki pointing to the potential of paying more than necessary, or swapping to a product that doesn’t really reflect their needs.
King agreed, noting: “For those with very large mortgages, moving to a lender with even just a slightly lower rate can save thousands of pounds over a five-year term.”
Brokers have a role to play
Lipnicki emphasised the importance of brokers maintaining contact with their client throughout the term of the mortgage, so that they are on hand to review the client’s mortgage needs regularly.
He added: “Long-term client relationships should be a mainstay of a mortgage intermediary.”
Bickford noted that while brokers do not “have a crystal ball”, they are best placed to go through the client’s current and future plans to ensure that the mortgage is affordable both now and in the future.
Stewart added that banks are likely to give their staff targets “and there should be no such thing in a regulated advice market”, with intermediaries offering a valued service.
“If we have learned anything over the past six months it is that a good adviser will remove emotion from a client’s decision making and allow them to see the facts as they stand,” Stewart concluded.
