Lenders need to contact borrowers three months before their deal ends

No one wants to pay more for their mortgage than they need to.

Yet an incredible two million homeowners are each paying an average of £4,500 a year.

It’s because their mortgages have reached the end of their discounted period and lapsed onto their lenders’ Standard Variable Rate (SVR), according to the 2018 Mortgage Saver Review, published by Trussle, the online mortgage broker.

Why some homeowners aren’t switching to a cheaper deal

Almost a quarter (23%) of people surveyed for Trussle’s 2017 Mortgage Saver Review

said getting their first mortgage was stressful, 17% said it was frustrating, and 8% admitted that the process brought them to tears.

More than one in ten (13%) said they’d been discouraged from moving home by the ordeal of getting their first mortgage, the report found.

One in five (20%) said the reason they haven’t switched mortgage provider to find a more suitable deal was because it’s too complicated, and the same number thought it was too much hassle.

And worryingly, two thirds (65%) didn’t know that a lender’s SVR is usually worse value than their fixed rate.

It doesn’t help that lenders are under no obligation to let their customers know that they’re moving their mortgages onto their SVR.

Poor communication by lenders

One in five (21%) homeowners said they couldn’t remember the last time their lender got in touch with them about their mortgage, research for Trussle’s Mortgage Saver Review 2018 found.

And almost twice as many (37%) said their lender or broker doesn’t do enough to keep them updated.

Borrowers aren’t the only ones who’ve recognised a problem with how lenders communicate.

The Financial Conduct Authority (FCA), which regulates mortgage lenders, has found inconsistencies in the way some lenders communicate.

One large lender appears to “focus retention efforts based on an assessment of a customer’s likelihood of switching to a different lender”, the FCA said in its Mortgages Market Study, published in March 2019.

“Another large lender has historically not sought to proactively engage with customers remaining on a reversion rate for longer periods, but offers comparably generous retention procuration fees to intermediaries,” the report found.

The report also estimated that about 800,000 consumers (around 10% of mortgage holders) “may be suffering harm” as a consequence of not switching mortgages.

The Competitions and Market Authority, which promotes competition for the benefit of consumers, has also agreed that some consumers’ inactivity can be exploited by firms, the study said.

Homeowners want more transparency

The vast majority (83%) of customers surveyed think it would be useful to receive a letter from their lender three months before the end of their initial mortgage period, letting them know when it’s time to switch to a new rate, according to Trussle’s Mortgage Saver Review 2018.

And 79% of borrowers think the switching process would be improved with more information about why they need to switch and how to go about it, the report found.

Steps in the right direction

The Central Bank of Ireland, the country’s financial services regulator, has paved the way to increase transparency in its mortgage market.

In January 2019, it brought in new and enhanced requirements to help customers switch mortgages.

The new regulations include:

  • telling customers about cheaper options 60 days before they come out of a fixed-rate mortgage
  • giving switchers all the information they need to switch, including how long it will take

There has also been a significant shift in the telecoms industry. In May 2019, Ofcom, the media watchdog, introduced rules forcing broadband, phone and pay-TV firms to warn customers when their contract is coming to an end, and let them know what their best available deals are.

Some brokers have been trying to help customers switch before their mortgage lapses onto their lenders’ SVR. For example, Trussle’s free mortgage monitoring service continuously compares customers’ mortgages with the latest deals on the market and lets them know as soon as it makes sense to switch.

What needs to change

Mortgage lenders need to adopt the Mortgage Switch Guarantee to make mortgages fairer.

The Guarantee, proposed by Trussle, calls on mortgage lenders to commit to greater transparency, which includes contacting customers three months before the end of their initial rate.

This could help homeowners manage their finances more easily. They’d have plenty of time to find a new deal before their mortgages are moved onto their lenders’ SVR.

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