Mortgage holders ‘overestimate difficulty of switching and underestimate benefits’
The Financial Conduct Authority (FCA) made the conclusion following research it commissioned to better understand why borrowers don’t switch their mortgage.
It comes after estimates revealed around 800,000 consumers (10% of mortgage holders) do not switch deals at the end of their mortgage fix. This means they miss out on average savings of £1,000 per year in the first two years of the switch, and £100 a year thereafter (based on a competitive two-year deal).
The research revealed that mortgage holders typically overestimate the difficulties of switching while underestimating the benefits.
While switching barriers vary from person to person, the main factors include a lack of time, fear of the application process and because borrowers are content with their current lender or deal.
However, the research revealed that those who don’t switch are less likely to be vulnerable compared to the general population.
Typically, those failing to switch include older, wealthier males, while women who don’t switch tend to be in the younger age bracket. However, mortgage non-switchers do switch other financial products, such as insurance and energy.
Just two in five use a mortgage broker to switch and those who don’t cite ‘conflict of interest’ over commission for not wanting to use one.
Many borrowers also tend to focus on monthly outgoings and want to see monthly savings of at least £120 prompting them to switch.
The research, undertaken by Savanta: ComRes on behalf of the FCA, also found that understanding of the switch process is limited, and consumers are more likely to switch internally rather than look for a deal elsewhere.
As such, the FCA said there is a case for intervening to help mortgage customers who don’t switch and it will issue a consultation paper on potential remedies later this year.
It said effective remedies would need to engage consumers in the switching process, set out the case for switching and give borrowers enough of the right information so they’re not overwhelmed, causing them to disengage.