FCA calls for more innovation in the mortgage market

The FCA’s proposals are particularly aimed at helping customers find the best-priced suitable mortgage deal. The FCA also wants to help longstanding borrowers who are currently unable to switch to a better deal, often referred to as ‘mortgage prisoners’.

The FCA’s interim findings show:

• 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 that current commercial arrangements between firms are leading to poor consumer outcomes;
• However, there is no easy way for a consumer to be confident, at an early stage, of the mortgage products for which they qualify – this is a significant impediment to shopping around;
• A significant minority of customers (around 30 percent) fail to find the cheapest mortgage for them;
• A number of longstanding customers would benefit from switching away from a reversion rate but cannot, despite being up-to-date with payments; most took out a mortgage before the financial crisis.

The FCA has also identified a range of potential ways to make the market work better for consumers. These include:

• Making it easier for consumers, at an early stage, to identify for which mortgage products they qualify, to assess and compare those products and, ultimately, to take out a mortgage;
• Removing barriers to innovation in the sale of mortgages, including those due to aspects of FCA advice rules and guidance;
• Making it easier for consumers to assess the strengths of different mortgage brokers. The FCA intends to work with the broker sector to develop metrics to help consumers compare brokers;
• Helping certain longstanding borrowers who cannot switch.

The FCA said it intends to explore options to help these customers, for example 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.

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 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.