The Financial Conduct Authority has identified a number of ways it wants the mortgage market to work better for those buying a property.
The regulator's interim findings on the state of the mortgage market, published today (4 May), showed high levels of choice and consumer engagement.
Over three quarters of consumers switched to a new mortgage deal within six months of moving onto a reversion rate.
Little evidence was uncovered that current commercial arrangements between firms are leading to poor consumer outcomes.
But the watchdog was concerned there is no easy way for a consumer to be confident, at an early stage, of the mortgage products for which they qualify.
The regulator ruled this was a significant impediment to shopping around.
The FCA found a significant minority of customers - around 30 per cent - failed to find the cheapest mortgage for them.
While a number of longstanding customers would benefit from switching away from a reversion rate they cannot, despite being up-to-date with payments.
The regulator found most of these mortgage prisoners took out their home loan before the financial crisis.
The FCA identified a range of potential ways to make the market work better for consumers.
These measures include the watchdog removing barriers to innovation in the sale of mortgages, including those due to aspects of FCA advice rules and guidance.
The FCA is also looking at ways to make it easier for consumers to assess the strengths of different mortgage brokers.
The regulator intends to work with the broker sector to develop metrics to help consumers compare brokers.
The watchdog will also help certain longstanding borrowers who cannot switch, for example with an industry-wide agreement 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 payments.
The FCA is now seeking views on these proposals and intends to publish a final report around the end of the year.
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."
David Hollingworth, associate director of communications for London & Country Mortgages, said the findings that some borrowers failed to find the best deal for them should only strengthen the need for quality mortgage advice.
He said: “The regulator’s proposal to develop tools to assist borrowers in understanding the level of advice from brokers could bring even more clarity to the varied broker models in the market, helping consumers find the right advice for them.
“Lenders have largely developed options for existing customers that have maintained their payments but more choice to cut the number of mortgage prisoners would be welcome.
"Ideally we should attempt to open up the market options as much as possible for this type of borrower.”
emma.hughes@ft.com
