MortgagesDec 19 2018

FCA told to act on mortgage penalties

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FCA told to act on mortgage penalties

The Competition and Markets Authority has called on the Financial Conduct Authority to find out more about mortgage customers who could switch onto a better rate but do not.

The CMA made the recommendation today (December 19) in response to the super-complaint launched earlier this year by Citizens Advice, which called  for the ‘loyalty penalty’ currently paid by consumers in the mortgage market to be remedied.

The charity had claimed the practice of overcharging loyal customers in comparison to their new counterparts was "widespread" - reporting that loyal consumers lost £4.1bn a year in Britain across five markets: mortgages, savings, home insurance, broadband and mobile.

In its response the CMA offered "strong support" of the FCA’s current work on mortgage prisoners, but emphasised there were still 10 per cent of long standing customers who could switch and make significant savings but did not.

The CMA stated: "We recommend the FCA find out more about mortgage customers who could switch but do not and look at what measures can be taken to help or protect them if needed."

The CMA also suggested applying "smart data principles" and empowering consumers to give intermediaries access to their information could add further value in the mortgage market, for example by speeding up affordability assessments.

The review read: "We recommend that the FCA also consider how data portability can benefit mortgage customers as part of its engagement with the Smart Data Review."

The FCA had stated in its banking review out yesterday (December 18) that, more broadly, ‘loyal’ or ‘inert’ customers who stay with a bank for a length of time without taking action were often not getting good value for money.

The regulator stated: "In many retail banking markets (mortgages, credit cards, savings) this pricing dynamic has become entrenched."

It is currently working on measures to address this issue.

The CMA found given high switching rates and other factors in mortgages, it seemed unlikely that "collective switching" would be effective or practicable in the mortgage market.

The CMA is expected to provide an update on its progress to the joint government and regulator Consumer Forum in six months, with the FCA and Ofcom also expected to share their progress across the five identified problem markets.

Gillian Guy, chief executive at Citizens Advice, said the review was a "strong response" from the CMA which recognised loyal customers were facing unfair penalties.

She said: "The CMA is clear that nothing should be off the table when it comes to tackling the loyalty penalty, including targeted price caps, so we're expecting bold action.

"While the CMA needs to hold regulators to account, the onus is now on Ofcom and the FCA to act. The CMA has set a 6-month deadline for progress and expectations are high.

"Regulators must do whatever it takes to fix the loyalty penalty in the mobile, broadband, insurance, savings and mortgage markets."

Ms Guy added: "As the CMA has recommended, where regulators lack the powers to address this problem the government should introduce legislation to fill the gaps - ideally in the next Queen’s Speech."

rachel.addison@ft.com