Competition in the mortgage sector has recently been on the agenda of the Government and the Financial Conduct Authority (FCA), with both bodies publishing consultations which aim to promote competition in the interest of consumers.
Government plans to make for seven day mortgage switching
Under the Government's plans, homeowners could be given the opportunity to switch their mortgage supplier within seven days, as early as next year.
The Government recently published a call for evidence setting out its proposals to make switching quicker and easier for consumers across a wide range of sectors, including the mortgage sector. At the moment a typical mortgage switch takes between four to eight weeks, while a typical current account switch may take seven days and a change in mobile provider typically takes one day.
The call for evidence invites consumers and industry to share its views on the potential benefits and drawbacks of quicker switching, the steps an organisation would need to take to implement seven day switching and the estimated cost, and how switching could be made easier for consumers.
The Government aims to create and maintain a fair and competitive environment and believes that consumers who are better informed with easy access to information are more likely to demand choice and by exercising it, stimulate competition and innovation.
Sajid Javid, Business Secretary, said:
"I want to give consumers more power over switching providers for the services they rely on to make sure they are getting the best deals. The government is committed to creating a system that works for consumers and makes markets more competitive…"
If the changes come into force competition amongst banks and other mortgage providers could increase, which could ultimately decrease costs for consumers. However, as pointed out by the Council of Mortgage Lenders, "whether a 7-day target is realistic, given tasks that lenders need to complete to fulfil risk and regulatory requirements, depends on when the clock starts ticking."
FCA: Competition in the mortgage sector
On 16 May 2016, the FCA published a Feedback Statement (FS16/3) on its call for input on competition in the mortgage sector, setting out the key themes emerging from the call for input and outlining the further competition work it intends to take.
The FCA stated that as a mortgage is a significant product for a large number of consumers and is one of the biggest financial commitments people make in their lives, it is important that competition in the mortgage sector works.
The key themes emerging from the responses include:
- that consumers face challenges in making effective choices, particularly when it comes to assessing and acting on information about mortgage products, with intermediaries being key to the process;
- there could be more effective use of technology in the provision of information and advice;
- commercial relationships between different players in the mortgage sector may give rise to competition concerns; and
- certain aspects of the regulatory framework may have a negative impact on competition.
The FCA intends to undertake a targeted market study which is focused on consumers’ ability to make effective choices, with a view to improving how competition works in consumers’ best interests and will conduct more detailed scoping work before issuing the terms of reference for the market study in the last quarter of 2016.
Given that the mortgage sector has already experienced a number of changes brought about by the FCA's Mortgage Market Review and the introduction of the Mortgage Credit Directive, firms should be mindful that the consultations could result in the need to implement further changes, resulting in further costs for firms. At this stage, the extent of the possible changes is unclear but firms should start thinking about whether their current systems could accommodate 7 day mortgage switches and the need to improve competition in the mortgage sector.