UK financial watchdog calls for more innovation to help people find the best mortgage deal

The mortgage market in the UK is working well for many people but there are a significant number who are stuck, unable to find a better deal, according to a report from the nation’s financial watchdog.

The interim report from the Financial Conduct Authority (FCA) highlights that there could be better choice, particularly longstanding borrowers who are unable to switch to a better deal and become ‘mortgage prisoners’.

It found that while there is a high level of choice, there is no easy way for an applicant to be confident, at an early stage, of the mortgage products for which they qualify. It describes this as ‘a significant impediment to shopping around’.

It also found that around 30% fail to find the cheapest mortgage for their circumstances and said that while this is a minority the figure is still significant. On top of this many people who took out mortgages before the financial crisis cannot switch.

It is calling for the removal of barriers to innovation in the sale of mortgages, including those due to aspects of FCA advice rules and guidance and for it to be easier for consumers to assess the strengths of different mortgage brokers.

It also wants it to be easier for consumers, at an early stage, to identify which mortgage products they qualify for, to assess and compare those products and, ultimately, to take out a mortgage.

The FCA is consulting on its interim findings and proposed remedies. It intends to publish a final report around the end of the year and will consult on any specific changes required to its rules.

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 report has been welcomed by the industry. Jackie Bennett, director of Mortgages at UK Finance, the body which represents over 90% of lenders, said that the report shows that, in the main, the mortgage market is working effectively for the vast majority of borrowers.

Jackie Bennett said:

‘The industry is committed to lending responsibly and ensuring that competition in the market works to the benefit of all customers. We note the FCA’s points regarding perceived areas of weaknesses within the market, particularly around customers who currently may be unable to switch products. We will be working through the FCA’s recommendations and continuing to engage closely with the regulator over the coming weeks as we respond to the consultation.’

The industry needs to build trust and engage with consumers and communicate more, according to Charles McDowell, mortgages commercial director at specialist lender Aldermore.

Charles McDowell said:

‘The consumer often falls victim to a lack of communication and an opacity of information. There needs to be better communication from both the broker and lender.

‘However we recognise that the broker often has the deeper relationship with the borrower. From a lender’s perspective, it is important that we take an appropriate view of the risk when reviewing applications, but there is a need to a strike a fine balance between risk and flexibility, and ultimately act in the consumers’ best interest.

‘We have seen the likes of the self-employed struggle because they do not fit the norm, and the industry needs to consider consumers’ individual circumstances before refusing a remortgage application.

‘Specialist lenders, like Aldermore, take a different approach and manually assess each customer’s circumstances on a case by case basis, meaning we are more likely to be able to offer a solution. We look forward to working closely with the regulator in the next phase of their review.’

Technology holds some of the answers, according to Ishaan Malhi, chief executive of online mortgage broker Trussle.

Ishaan Malhi said:

‘We’ve championed the use of technology to deliver a simple, intuitive, and convenient service to help consumers choose and switch to the most suitable and cost effective deal.

‘The industry as a whole has made baby steps towards embracing technology and innovation to educate and empower consumers in recent years, but I hope this report galvanizes everyone to do more.

‘The inclusion of robust qualitative and quantitative insight supports many of the problems we identified and have been working hard to solve since we launched two years ago. We hope the industry stands up and takes notice of its shortcomings. Today’s home owners deserve a better mortgage experience and it’s clear to see the potential of technology in delivering that.’


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