It typically costs borrowers £550 a year if they miss out on the cheapest rate, the FCA said.
The regulator is now looking at ways to make it easier for borrowers and advisers to compare the market.
We asked this week’s Marketwatch panel why a significant portion of borrowers don’t end up on the cheapest deal and whether the regulator is right to be concerned.
It is reassuring to see the FCA proactively seeking ways to improve the landscape for consumers and intermediaries alike. The initial conclusion? The market is working well; a positive nod to an industry that works hard to get it right.
There has been a lot of interest around the headline that around ‘30% of borrowers didn’t end up with the cheapest deal’. There are two ways of thinking about this statement.
The first: Do consumers have wide enough access to the vast range of available lenders and products? There is genuine concern that if consumers only speak to their bank, or a limited panel adviser, the outcome will not be the most competitive, or ‘cheapest’.
The second way of thinking about this is by addressing the word cheapest. Competent advisers should be focused on the most suitable recommendation, rather than simply the cheapest.
In order to achieve this, we need to consider a variety of product elements. These include the repayment type, the mortgage term and other considerations such as the speed of a lender’s servicing timescales, to name but a few.
Given the current climate, it would be remiss of us not to mention product transfers. A good adviser will weigh up the simplicity of the underwriting process with a product transfer against submitting an application with a new lender.
In this instance the ‘cheapest rate’ is yet again only one of the many factors for advisers to consider to ensure we achieve the best client outcome.
Reading the FCA’s interim report, it is great to see that there is a shift change coming with regards to advice and recommendation.
Doing the right thing by the client must always come first.
There are more than 50,000 individual criteria on Knowledge Bank, so it is impossible for a broker to memorise each of those from every lender and prove to both the client and the regulator that they have found the best product.
With the FCA clamping down it is increasingly essential that brokers can prove evidence of research on criteria not just on rate.
I think that, within the next few months, proving evidence of criteria search will be as important as proving evidence of product.
Ultimately the brokers need an end-to-end solution from a CRM system through to full application and everything in between.
But whilst everyone is working on their own piece of the jigsaw, it’s important to keep focused on the process from a broker’s point of view.
It has to remain relevant and true to the advice process and the journey that the customer goes through.
In today’s mortgage market, affordability and criteria must come before product to ensure customers are getting the best advice.
Brokers can no longer just place a case with the lender that comes to the top of a product sourcing system in terms of rate because affordability and criteria are the key drivers in the industry now, rate is a much less important factor.
A broker may find the top ten lowest rates in the market but discover that their client doesn’t qualify for any of them because of criteria restrictions.
With so much competition in the mortgage market and such a huge array of acceptance criteria, it isn’t a surprise some borrowers do not secure the very cheapest rates.
Mortgage advisers play a large part in making sure many consumers get the lowest rates to suit their circumstances but there is a lot to consider.
Brokers select the lenders based on the overall cost, rate and speed of service, but this changes when they approach the specialist or niche lenders particularly if clients have a more tricky financial situation.
Many consumers feel comfortable with their existing lender and trust them to offer them the best deal.
Unfortunately, these days financial loyalty is often a costly mistake.
The easiest way to get the cheapest mortgage should be to pick up a best buy table and choose a lender, but in reality, this is not going to work for many borrowers. There are simply too many people with complex financial situations.
Many borrowers do not get the cheapest deal if they apply directly to lenders as they do not have to disclose how competitively priced their rates are or if they would qualify elsewhere.
They are also unlikely to know there are direct-only, broker-only deals or even broker-exclusive rates.
As the FCA reports, choice is typically a good thing but with so much going on in the industry there is no easy way for a consumer to identify, at an early stage, those products for which they qualify.
That’s why the FCA’s states since MMR the likelihood of using a broker has risen from 2% to 60%.