UK Finance responds to FCA's Mortgage Market Study

Commenting on the publication of the Financial Conduct Authority's Mortgages Market Study, Jackie Bennett, Director of Mortgages at UK Finance, said:

We agree with the findings of the FCA's final Mortgages Market Study report that the mortgage market is, on the whole, working well. Lenders have been working closely with the regulator, responding to the challenge of so-called ?mortgage prisoners? with a voluntary industry-wide agreement which has already seen firms contact over 26,000 customers. The regulator's offer of more flexibility around affordability testing is encouraging. This will help those customers who are up to date with payments or who are not looking to borrow more.

Requiring inactive lenders and administrators of entities not authorised for mortgage lending to review their existing customer books to identify and contact eligible customers is a positive step. However, even under these proposals, there are thousands more customers with inactive lenders or unregulated owners that the regulated industry would be unable to help. We therefore call on the government to work with the FCA to ensure that all customers, regardless of owner, have full regulatory protections to ensure they are treated fairly.

The report also recognises the diversity within the mortgage market which has continued to develop. In recent years, lenders have made considerable strides in contacting customers both pre and post the end of a fixed term, making it easier for people to switch on to a new rate. In 2018, this accounted for nearly £150 billion of product transfers with just over half of customers taking advice when they do a product transfer. We look forward to contributing to the further consultation on advice and the consumer research as to why customers do not switch.

Area of expertise:

Mortgages

Notes to editor

1. UK Finance is the collective voice for the banking and finance industry. Representing more than 250 firms across the industry, we act to enhance competitiveness, support customers and facilitate innovation. 
 2. <a href="https://eur01.safelinks.protection.outlook.com/?url=https%3A%2F%2F74n5c… total 67 lenders representing 97 per cent of active lenders signed up to the voluntary agreement</a> announced on 31 July 2018. Since then, firms have been working to identify how many customers were eligible under the agreed criteria.
 Firms identified 29,000 customers. This number is larger than the estimate in the FCA?s Mortgages Market Study Interim Report. This is because the criteria agreed was wider than that used for the FCA analysis, primarily in that the industry did not limit the cohort to customers who took out their mortgages before the financial crisis and LTV was removed as a barrier to switching. A number of lenders already met the agreed criteria so did not have to take any further action. Other lenders amended their criteria to bring them into line with the agreement, this was typically as they had a different arrears criteria, a limit on LTV or minimum balance.
 Under the agreement, lenders undertook to contact customers by the end of 2018. Firms have told us that 26,200 customers were contacted. There are a number of reasons why fewer customers were contacted than identified. This includes customers who redeemed during this period or customers who fell outside of the criteria in the period between being identified and the firms making contact with them, for example, if they went into arrears or applied to let their property.
 Finally, UK Finance asked lenders how many customers redeemed or switched as a result of the contact made. To date, just over 1,400 customers redeemed (6 per cent of the total) and just over 2,600 customers switched (10 per cent of the total). While these numbers are low, they are typical of response rates that lenders see for this type of campaign and what we have seen over the years when trying to engage with customers on interest-only. 
 The low response rate supports the need for further research on why customers do not switch as recommended by the CMA in its response to the Citizens Advice Super complaint. We welcome the FCA?s decision to take this forward and will continue to work with the regulator and lenders to provide remortgage opportunities for these customers. We also look forward to seeing the detail of the more relative affordability test that will be able to be applied.
 3. UK Finance?s figures on <a href="https://eur01.safelinks.protection.outlook.com/?url=https%3A%2F%2F74n5c… product transfers</a> for the fourth quarter of 2018 reveal:
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There were a total of 1,189,100 homeowner product transfers in 2018, representing £158.7 billion of mortgage debt refinanced internally.</li>
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Of the total number of product transfers in 2018, 624,900 transfers, worth £85.7 billion, were conducted on an advised basis and 564,300 transfers, worth £73 billion, were execution-only.</li>
<li>
331,500 homeowners switched product with their existing provider (product transfers) in the fourth quarter of 2018.</li>
<li>
By value, this represents £46.1 billion of mortgage debt refinanced internally. These figures do not feature in any market data on remortgaging, or other published gross mortgage lending data.</li>
<li>
Of the total number of product transfers in the fourth quarter of 2018, 176,700 transfers, worth £25.2 billion, were conducted on an advised basis and 154,900 transfers, worth £20.9 billion, were execution-only.</li>
</ul>