95% of the market signed up to inform customers about switching their mortgage

Michael Lloyd

November 6, 2018

Some 95% of the market has signed up to an agreement with UK Finance, the Building Societies Association (BSA) and Intermediary Mortgage Lenders Association (IMLA) to inform customers about switching their mortgage.

There are 67 lenders signed up to proactively contact customers who meet the agreed criteria by the end of this year if they have not already been in contact with them in 2018.

Speaking at UK Finance’s Annual Mortgage Conference, Jackie Bennett, director of mortgages at UK Finance, said: “The FCA identified some points regarding perceived areas of weaknesses within the market, particularly around customers who currently may be unable to switch products. The industry responded positively to this challenge.

“At the end of July UK Finance announced a voluntary industry agreement with the BSA and IMLA to help existing borrowers on reversion rates who are up-to-date with repayments but, because of stricter affordability criteria, are currently ineligible to move to an alternative product provided by their lender.

“This means that thousands of customers will be given an opportunity to move to a better deal.”

However Bennett said there are many thousands of customers that they are currently unable to help because they cannot meet the new affordability requirements and lenders cannot use the previous transitional arrangements since the Mortgage Credit Directive was brought in, in the UK.

She added: “Even if customers can demonstrate that they have been successfully making higher mortgage payments the previous transitional arrangements cannot be used and they cannot move to a new lender.

“We are actively exploring with the FCA what might be possible for customers of inactive lenders or unregulated owners – which actually make up the majority of those that the FCA identified and who are not UK Finance members.

“But to make this possible it is likely to need Handbook changes at the very least, and possibly legislative changes.  We know the FCA and Treasury are actively considering this important issue.”

Oonagh O’Connor, senior policy manager at Trussle, welcomed the news and said it echoed what they have been campaigning for with the Mortgage Switch Gurantee, for lenders to commit to contacting borrowers including having a mandate to write, email and call them to alert them they are three months before their end of their initial rate term.

She said: “At last, there is industry recognition of the need for lenders to do more in communicating with borrowers to stop so many being moved from initial promotional rates to standard variable rates.

“This has to be alongside lenders displaying the true cost of their mortgage products at the point of sale and making information, including repayment statements, available online, so that consumers can have complete clarity over their borrowing.”

In terms of technology Bennett thought the rules from the FCA haven’t kept pace with technological developments like customers who want to complete an application online then phone about fees and later use webchat to confirm a fixed rate end date.

Bennett said: “Customers should be able to have a choice about how they transact, and lenders want to be able to support this type of approach. UK Finance has called for further clarification from the FCA as to how lenders can meet customer needs without necessarily falling into advice.

“The FCA wants it to be easier for customers to understand the products they may be eligible for earlier in the process.

“This is a laudable aim. However, as customers have ever more complex circumstances – multiple incomes, self-employment, contracting to name but a few – it is more difficult for any ‘tool’ to narrow down the products available for a particular customer.

“Based on our conversations with lenders it would take several hundred questions to ensure that all bases were covered.

“That’s not to say that technology developments won’t help more standard customers – they will do and they are – but I think we have to be realistic about what proportion of the market can be served in this way.”

Bennett added the transition from LIBOR to SONIA is due to happen by the end of 2021 and UK Finance is working across our broad membership base to understand the impacts from a funding, securitisation, derivatives, lending, operational and importantly, a mortgage contract perspective.

She said: “We know that there are some customers are on LIBOR-linked mortgages and it is vital that there is a smooth transition for them.”

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