In its ‘Switching in the Mortgage Market’ update released today (August 2), the regulator has said around 370,000 borrowers (4 per cent) could make a saving by changing to a 2-year fixed rate with their existing lender.
The FCA said the number of mortgage borrowers not switching their mortgage deal, when they could save money by doing so, has declined significantly since 2016.
“We do not see the same poor pricing practices that used to be prevalent in the general insurance markets, where pricing was opaque and loyal customers could face dramatic price increases over time as a result of price walking,” the regulator said in its update.
It highlighted however, that many mortgage borrowers have paid comparatively low interest rates in recent years, on both fixed and variable rates, and said most will likely face increasing mortgage costs as base rates and the cost of new fixed or other incentivised deals increase.
It therefore encouraged borrowers to consider their options and switch if they can - if it meets their needs and saves them money.
Around 150,000 would save over £1,000 a year for two years based on the FCA’s estimations, while 110,000 would save between £500- £1,000 and a further 110,000 would save under £500 a year for two years.
Rising rates
In its most recent analysis using data from the second half of 2021, the regulator found that 6.3mn mortgages (74 per cent) are on fixed rates, typically fixed for between two and five years.
Around half of these expire in the next two years, leaving 37 per cent of borrowers vulnerable to higher repayments at that point.
Of the 2.2mn borrowers (26 per cent) on variable rates, around half are on discounted variable or tracker rates and half are on reversion rates.
But for those on reversion rates, the FCA said that not all borrowers who can switch, would save money by doing so. It encouraged individuals to engage with their lender or a mortgage broker to help determine whether switching to a new deal is right for them.
The regulator also noted that some borrowers will decide not to switch because staying on the reversion rate suits their needs and circumstances. For example, they may be thinking about moving home or anticipating another future life event that will mean they would like the flexibility to repay their mortgage at will without paying an early repayment charge.
Paying a reversion rate does not automatically mean a consumer is experiencing harm or paying a ‘loyalty penalty’, the FCA has said.
Consumer duty
Elsewhere, the regulator said that lenders “should not be complacent given the rising cost of living and the significant impact this is having on borrowers” and made reference to the consumer duty, which will require all firms to focus on customer outcomes.
It said firms must ensure all individual communications with consumers are “fair, clear and not misleading” and that firms need to consider their overall approach to communicating with consumers to make sure they equip them with timely and properly informed decisions.
It also told firms to monitor the outcomes borrowers receive and “treat those who cannot switch fairly and support those in financial difficulties”.
Looking at the market overall, the regulator said there is little evidence of significant harm caused by a ‘loyalty penalty’ in the current mortgage market.
“We think pricing is generally transparent, and the structure of a mortgage product is fairly well understood by consumers evidenced by the extent of switching. Borrowers need to consider the trade-offs when considering what is appropriate for their individual needs and circumstances.”
jane.matthews@ft.com
