This week, the Financial Conduct Authority released research into mortgage switching – looking particularly at how consumers can be encouraged to seek out better deals.
The regulator’s research has three strands:
- Its mortgage switching research report
- Occasional Paper 54 on the characteristics of consumers who do not switch
- Occasional Paper 55 on brand loyalty in the mortgage market
Background to the research
The research came about in part as a result of the FCA’s Mortgages Market Study, which found that up to 800,000 consumers miss out on an average of £1000 a year by not changing deals. It also picks up issues highlighted in the Citizens Advice super-complaint about the ‘loyalty penalty’, which sees consumers who do not change suppliers penalised on fees and charge, in mortgages as well in cash savings and home insurance.
In January this year, the regulator published an update on its work across all three of these sectors.
What did the mortgage research find?
The research identified characteristics more likely among those who do not switch to a cheaper mortgage rate when they are able to.
The factors that contribute to a decision not to switch include:
- lack of time
- fear of the application process
- for many people, relative contentment with their current lender or deal
Highlights of the full findings can be read on the FCA website.
Importantly, the research ‘suggests that consumers could become better engaged with the switching process if given the right information at the right time’.
What does this ‘right information’ look like and how can financial services providers deliver it?
Giving ‘the right information’ to mortgage customers
- Understand that many have strong loyalty to their existing provider. The FCA reports that over half of non-switchers say they have not switched because they trust their lender.
You need to ensure that the options you present them with are clear, fair and not misleading.
- Engage consumers in the switching process. The research found that while many of the consumers who didn’t switch were aware of the switching process, around 40% had never considered switching with their current lender. Only 1 in 5 could recall being contacted about switching or renewing their mortgage deal.
Ensure any communications are engaging – which means making the wording and way the information is distributed and presented suitable for your audience. Think about the channel you use as well as the wording. Are emailed or hard copy letters more appropriate? Should you direct people to a website or call them when their mortgage rate is up for renewal?
- Clearly set out the case for switching. On average, the consumers asked by the FCA said that a monthly saving of £120 would encourage them to switch mortgage. Your communications should unambiguously communicate any savings to be made, while ensuring that the correct disclaimers are included, displayed with the required
- Give individuals enough of the right information – without providing so much that it overwhelms them. This is a fine balance. Marketing and Compliance teams need to work together to ensure the content of any communications is both concise and compliant.
Of course, overlaying all of this is the need for all your financial promotions and customer communications to comply with the FCA’s financial promotions rules. Make sure your team reviews and provides the requisite sign off for client communications and financial promotions. An element of automation can help to make processes more efficient and robust.
What happens next?
Based on its research, the regulator believes there is a case for intervening to help mortgage customers who do not switch. It has considered a range of different remedies and plans to issue a consultation paper later in 2020 these potential remedies.
There is a timetable of next steps on the FCA website.
How can you treat mortgage customers fairly?
If you want to refresh yourself on the FCA’s rules on Treating Customers Fairly, you can download our TCF FAQs. The document looks at some of the key areas of the regulator’s rules on fair treatment and answers the most frequently-asked questions. You can download a free copy from our resource library.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.