Mortgage borrowers need more help to find the best deal, says FCA
Plans to make it easier for mortgage borrowers to shop around have been proposed by the City regulator after it found nearly a third of people fail to find the cheapest deal for them.
The Financial Conduct Authority (FCA) said these people could have saved £550 per year with a cheaper deal.
It is also exploring ways to help "mortgage prisoners" - longstanding customers who are trapped in their existing deal - to switch.
Publishing its interim report into the mortgage market, the FCA said it had found that competition is working well for many people.
But it also identified ways in which the market could work better.
Mortgage debt accounts for over 80% of total UK household liabilities, so selecting a deal is one of the most important financial decisions consumers have to take - but it can be a difficult one to get right - the FCA said.
The FCA said it wants to see:
- Consumers being able to find the right mortgage more easily;
- A wider range of tools giving people choices about the support (including advice) that they receive;
- Consumers choosing an intermediary to be able to do so on an informed basis;
- People being able to switch more freely to new deals "without undue barriers".
The regulator said that while there is "little evidence" that current arrangements between firms are leading to poor consumer outcomes, there is no easy way for people to be confident at an early stage of the mortgage products they qualify for.
This is a "significant impediment to shopping around" - and around 30% of customers fail to find the cheapest mortgage for them, it said.
On average, these consumers were paying around £550 per year more over the introductory period of their mortgage compared to the cheaper product.
One approach could involve lenders making the necessary eligibility and other qualification criteria available to other market participants consistently at an earlier stage, the FCA suggested.
This should help brokers and also create other opportunities for new online tools, it said.
The FCA also suggested making it easier for people to compare mortgage brokers.
The regulator said it intends to work with the broker sector to develop ways to compare brokers.
The report said: "We found that on average a consumer's choice of intermediary makes a difference to the eventual cost of their mortgage.
"In particular, we have observed links between more expensive mortgages and intermediaries that typically place business with fewer lenders.
"But there are few tools to help consumers choose an intermediary."
Christopher Woolard, executive director of strategy and competition at the FCA, said: "The mortgage market is one of the largest financial markets in the UK and there have been significant changes to the market since the financial crisis in order to ensure that we do not return to the poor practices of the past.
"For many the market is working well with high levels of consumer engagement.
"However, we believe that things could work better with more innovative tools to help consumers.
"There are also a number of long-standing borrowers that have kept up-to-date with their mortgage repayments but are unable to get a new mortgage deal; we want to explore ways that we, and the industry, can help them."
The FCA also outlined how "mortgage prisoners" could be better helped, many of whom took out interest-only deals before the financial crisis.
Stricter lending practices following the crisis make it hard for these customers to find a cheaper mortgage.
The regulator suggested there could be an industry-wide agreement for lenders to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up-to-date with their payments.
The FCA will consult on the findings and proposed remedies, with a final report around the end of the year.