The government is pushing proposals that would enable homeowners to switch mortgage provider within a week.
Last week’s Queen’s Speech included promises to encourage switching, which are being taken forward within the Digital Economy Bill.
The Department for Business, Innovation & Skills’ call for evidence stated consumers would only have to deal with a new mortgage lender, in the same way bank accounts can now be switched within seven days.
Business secretary Sajid Javid said: “I want to give consumers more power over switching providers for the services they rely on, to make sure they are getting the best deals.”
However, critics have pointed out mortgage switching is potentially a lot more complicated than moving bank accounts, as borrowers face detailed affordability checks and lenders require property surveys.
The Council of Mortgage Lenders responded:
• There are specific regulatory requirements about the things that lenders need to do before they can agree and complete a remortgage, which make it harder to complete to a tight timescale than in some other sectors.
• The mortgage market has recently been reviewed by the FCA and will itself already be subject to a targeted competition study in the fourth quarter.
• There is a high degree of intermediation, which helps consumers to remortgage and no evidence suggesting the timescales to complete are seen as an obvious barrier.
• The BIS consultation refers to the seven-day period beginning “when the consumer gives their consent to switch to the new provider and the new provider accepts that customer”, which may imply the period would only begin once all the necessary risk assessments, affordability checks and confirmation has been given.
If that is the correct interpretation, then many lenders would potentially already be operating to this timescale.
CML director general Paul Smee said lenders have long recognised that speed is frequently valued highly by remortgage customers. “However, whether a seven-day target is realistic, given tasks that lenders need to complete to fulfil risk and regulatory requirements, depends on when the clock starts ticking.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said while in theory this sounds attractive and makes for a “wonderful soundbite”, the reality could be very different.
“Currently, the best-case scenario for switching mortgage is one month, but it typically takes two months and could take as long as three months,” he admitted.
Problems around valuation of properties will be less of an issue on lower loan-to-values, as automated valuation models are available, although these would have to become more commonplace in order to make a seven-day switch achievable.
“If the borrower gets into the habit of switching their mortgage frequently because it is easier to do so, then numerous credit checks could affect their credit rating, subsequently damaging their long-term prospects,” pointed out Mr Harris.
“Lenders model pricing on account of how long they anticipate borrowers staying with them, so if there is a lot of chopping and changing as borrowers become more short-termist in their outlook, then pricing and early repayment charges could be forced upwards.”
Mr Harris added that current account switching has been in place for several years, but still has not broken up the “oligopoly” in the market.
“It could have a similarly limited impact on the mortgage market, particularly when you consider that there are many people paying more than they need to on their lender’s standard variable rate because of a general apathy towards remortgaging, particularly when interest rates are so low.”
Ishaan Malhi, chief executive of online mortgage adviser Trussle, said the proposals are a welcome relief.
He said: “UK homeowners are the victims of an industry cluttered with small print and hindered by archaic processes that turn people off from shopping around for a better deal.
“It is time that consumers were empowered to make the right choices for them and innovation through policy and technology will only help to achieve that.”
peter.walker@ft.com
