Why mortgage lenders should be as transparent as energy suppliers
It’s pretty easy to switch energy suppliers these days.
Between 42 and 49 days before your fixed-term deal ends, your supplier has to let you know that you’ll lapse onto their Standard Variable Rate (SVR).
It means you’ll have plenty of time to switch to another deal, which is a good idea as the SVR is usually more expensive. In fact, you could save up to £300 a year, according to the Energy Saving Trust.
But you could save much more – a hefty £4,500 a year – by switching mortgage lenders, according to research by Trussle, the online mortgage broker. Wonder what that could buy you – see our video here.
Yet despite the fact that mortgages make up 78% of lending to individuals in the UK, there’s no regulation on how or when mortgage lenders must tell you when your mortgage is moving onto their SVR.
How energy suppliers help customers
It’s a voluntary industry initiative, backed by the Government, designed to make switching faster and hassle-free.
- the whole transfer process is handled by the supplier you’re switching to
- the switch in done within 21 days
- any credit from your previous supplier is refunded within 14 days of your final bill
In March 2019, more than 660,000 customers moved to a new supplier, which was up by 34% on April 2018 and the highest number ever recorded, according to Energy UK.
Nearly half (48%) of those surveyed said they’d switched energy supplier in the last four years, according to research from the Energy Switch Guarantee published in June 2019.
Pamela Taylor, Independent Chair of the Energy Switch Guarantee, said: “It is encouraging that 83% of consumers say that they’re happy with the switching process especially when record numbers of customers continue to switch every month.”
It should be just as easy to switch mortgages.
Why mortgage lenders should follow their lead
The Financial Conduct Authority (FCA), which regulates mortgage lenders, would like to see switching made easier for borrowers.
“We also want to reduce barriers to switching for those consumers who are up-to-date with payments and not seeking to borrow more,” it stated in its Mortgages Market Study, published in March 2019.
The report found that some borrowers don’t switch mortgages, even when they could, and it would be better for them if they did. “We estimate that about 800,000 consumers (around 10% of mortgage holders) may be suffering harm as a consequence,” it stated.
Trussle estimates this figure to be even higher. “Some of the biggest hurdles faced by existing borrowers include complicated jargon, poor and inconsistent communication from lenders and brokers, and a negative first-time mortgage experience that discourages them from remortgaging when it’s time to do so,” it said in its 2018 Mortgage Saver Review.
“We now know that all of these issues contribute to ‘switching inertia’, collectively costing approximately two million homeowners almost £10 billion a year – equal to the annual cost of all online fraud in the UK.”
It doesn’t help that some lenders don’t communicate well enough with their customers.
“However, past supervisory work into the retention strategies of some of the large banks found that not all firms engage with all customers,” the FCA’s 2019 Mortgages Market Study said.
“For example, one large lender appears to segment their customers and focus retention efforts based on an assessment of a customer’s likelihood of switching to a different lender.”
How lenders can help customers
Lenders and policymakers need to implement the Mortgage Switch Guarantee to ensure transparency for borrowers at each step of the home ownership journey.
The initiative, launched by Trussle, could help make switching mortgages as easy as changing energy providers and help borrowers avoid paying more than the should.
It has three commitments for lenders to sign up to:
- contact borrowers electronically and by post three months before their initial rate period ends
- make important mortgage information accessible online or by text
- reveal the True Cost (with all the costs and incentives included) of a mortgage’s initial rate period
Help make mortgages fairer
If you want clear and simple information about your mortgage so you don’t pay more than you should, support the Mortgage Switch Guarantee.