Don’t legislate – educate
Dan Payne (pictured) is managing director of Fluent Mortgages
The Citizens Advice Bureau (CAB) has launched a ‘super complaint’ with the Competition and Markets Authority (CMA) because existing customers are overcharged relative to new ones across financial services.
I’m concerned that a kneejerk reaction by the CMA that could insist mortgage lenders offer their best deals to existing customers as well as new ones, which would be the equivalent of using a sledgehammer to crack a nut.
No one likes to pay more than they need to, and I would be the first to complain if it happened to me.
However, in the context of the mortgage market, ‘forcing’ lenders to move existing clients on to products that mirror those offered to new borrowers, will be self-defeating and interfere with a free market.
Making lenders offer existing customers the same deals as new borrowers would stifle competition and lead to pricing and product stagnation.
Yes, lenders do rely on existing customer inertia. But rather than force the issue, more effort needs to go into showing customers that there are alternatives in the market that could save them thousands of pounds.
Also working with lenders to simplify the means by which existing customers could move to a new lender, and encouraging T&C’s that make it easier to switch, would be a more positive approach.
If lenders felt there was a danger of losing customers because moves were made to simplify transfer, as with the utilities industry for example, and mortgage terms were more elastic, then they would be more likely to nurture their existing customers and treat them better from the outset.
Enforcing change might be seen to be an answer, but through better education and ensuring a simpler route to remortgage, the market, without unnecessary heavy handed intervention, would be able to right itself.
Let’s also not forget that customers need to take more responsibility to seek out better deals as well, and that is where good advice is so important.
Obviously, there are those who are vulnerable and whose financial situation has given them fewer options, but the CAB and CMA are underestimating how much better it would be to seek an educational solution rather than legislate.
Leave the sledgehammer at home.