Mark Davies (pictured) is managing director of Link Mortgage Services
In its recent report, the FCA published findings of its investigation into 250,000 people who are in closed mortgage books or have mortgages owned by firms that are not regulated by the FCA.
Of these around 170,000 of these borrowers are up-to-date with payments and would be eligible to switch because of the new affordability assessment rules.
Importantly over half of the group that are eligible to switch are paying interest of 3.5% or less. 39% are paying an interest rate of less than 3.0%.
Furthermore of those eligible to switch, 40,000 have less than £50,000 to repay, many of whom have less than 10 years remaining on their mortgage.
This all raises an important point. Many among these sets of borrowers may find limited value in switching depending on the deals available.
Even more relevantly we know from other areas of financial services that people are not prone to put a lot, if any, effort into switching.
Witness the success of mortgage product transfers that require no more effort than the click of a mouse are more enticing to borrowers than assembling forests of paper work to save another £30 per month with a new lender.
It’s a similar story in other markets.
It was only in 2016 that the Competition and Markets Authority’s (CMA) investigation into the banking industry found that just 3% of current account customers had moved their account in the past year.
This has not changed. The top six last year had 88% share of the UK’s current accounts.
A decade on from the banking crisis, we know consumers are still highly sceptical of banks’ motives.
YouGov’s 2017 International Omnibus study reported that while 36% of British consumers trust banks to work in their customers’ best interests, more than half (55%) don’t. But that figure belies consumers willingness to act on that feeling
The FCA’s 2017 Financial Lives Survey revealed 62% of people prefer to stick with a known brand.
This increases to 82% of those 75 and over. Despite what we may think, the crash of 2008/9 and the subsequent cynicism people feel towards financial institutions does not appear to be enough to convince them to take their business elsewhere.
This isn’t laziness. It’s often a positive choice to do nothing. Many people when asked will rate their bank highly for satisfaction.
Possibly when the benchmark is set so low at ‘don’t mess it up’ and then banks manage to achieve this then the result is positive inertia.
Inertia is defined as– a tendency to do nothing or to remain unchanged. For me it comes in two flavours – one is benign where no consumer detriment of any magnitude takes place (marginal saving between a product transfer versus remortgage) and the other is malign (as is too often the case in insurance) where a failure to move can result in a significant increase of cost to the consumer.
If we do not discriminate between these two then all types of inertia become acceptable and that is not realistic or right when we assess what consumers really expect and want.