All mortgage payers would like to think they chose a sensible and competitive home loan to suit their needs. Conversely, nobody takes out a mortgage with the intention of paying more than necessary.
New figures published by the Financial Conduct Authority (FCA) suggest that one in every three mortgage borrowers may be overpaying; in most instances simply due to their inability to find a more competitive deal.
Mortgage debt represents are the single biggest outgoing for most households in the UK. To help mortgage payers avoid wasting money on uncompetitive deals, the FCA has proposed a series of changes regarding the way consumers are provided with information on the options available.
Specifically, the FCA’s study concluded that at least a third of UK mortgage payers could reduce their monthly outgoings by finding a better deal. Discouraged by the complex and time-consuming nature of shopping around for a cheaper mortgage, most choose to stick with their current deals.
According to the FCA, those overpaying on their mortgage costs could save on average £550 per year. As for why those affected are finding themselves locked into uncompetitive deals in the first place, the FCA cites a simple lack of transparency among providers and brokers.
The Need for Clear and Concise Information
The main issue highlighted in the FCA’s study was a lack of clear and concise information during the early stages of customers’ mortgage applications. This lack of clarity is making it difficult for customers to get a competitive deal as they are not presented with a straightforward disclosure of all options available.
Going forwards, the FCA is calling on lenders and brokers to be more engaged with their customers to ensure they get the most appropriate deals to suit their requirements and financial circumstances; the regulator would like to see lenders voluntarily playing a more active role in helping their customers get the competitive deals possible.
The FCA has made it clear that regulatory intervention may follow if the efforts of the lenders prove inadequate to resolve the issue.
Potential Solutions
One of the suggestions put forward by the FCA is greater transparency with regard to qualification criteria and eligibility at an earlier stage in the application process. The regulator believes that it would be beneficial for customers to know which products they can qualify for at the earliest possible stage.
This would help broker’s pair customers with appropriate products and lenders, while at the same time allowing borrowers to make informed and educated decisions. As things stand, it is still the norm for applicants to be kept in the dark about their eligibility, until their mortgage application is well underway.
Comprehensive Market Comparisons
The FCA’s research also highlighted a potential issue with brokers who limit their services to a select few lenders. When a mortgage applicant approaches a broker, they expect an extensive market comparison to being conducted on their behalf.
What has become clear is the direct link between uncompetitive mortgages and brokers who work with a comparatively small panel of lenders. Consequently, the choice of broker a borrower makes has a major impact on the affordability of their mortgage.
The FCA said that it would like to see new measures brought in to assist borrowers in the selection of appropriate intermediaries. In the same way as comparing the market for a good deal on a mortgage, the customer would also be able to compare and contrast the services of competing brokers.
An End to Mortgage Imprisonment
The FCA once again pledged its commitment to assisting mortgage prisoners trapped in highly uncompetitive deals, many of which are being blocked from taking their business to new lenders, forced instead to pay extortionate rates of interest on their loans.
The regulator has proposed modifications to affordability criteria for lenders to apply when assessing if a customer could be eligible for a better deal.
Overall, the FCA’s study indicated that the mortgage market as a whole is performing adequately. While there are issues to resolve and challenges to overcome, there has been nothing but positive improvement over the course of recent years.
The FCA would like to see greater flexibility and transparency from lenders and brokers alike, the introduction of new tools and resources to help customers find a competitive mortgage would also be welcome.
For more information on how to get the best possible mortgage deal or to discuss the potential benefits of refinancing in more detail, contact a member of the team at Donkey Finance today.
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