Introduction

On 2 August 2022, the Financial Conduct Authority (FCA) released its latest statement on switching in the mortgage market.

Among other things the statement notes that the number of mortgage borrowers not switching their mortgage deal, when they could save money by doing so, has declined significantly since 2016. Given the rising cost of living, it’s important that borrowers consider their options and switch if they can, where it meets their needs and circumstances and saves them money. The FCA estimates that borrowers of around 37,000 mortgages could save an average of £1,240 p.a. for 2 years by switching to a 2-year fixed rate with their existing lender.

Key observations

• The FCA’s mortgage analysis using data from the second half of 2021 shows that 6.3m mortgages (74%) are on fixed rates, typically fixed for between 2 and 5 years. Of the 2.2m (26%) on variable rates, around half are on discounted variable or tracker rates and half are on reversion rates.
• The number of mortgage borrowers not switching their mortgage deal when they could save money by doing so has declined significantly since 2016.
• The FCA estimates that borrowers of around 370,000 mortgages could save an average of £1,240pa for 2 years by switching to a 2-year fixed rate with their existing lender.
• Those who the FCA estimates would save would not all save equally. The FCA estimates that around 110,000 would save less than £500 a year for 2 years, 110,000 would save between £500- £1,000 and 150,000 would save over £1,000 a year for 2 years.
• Not all borrowers on a reversion rate who can switch, would save money by switching (190,000).
• Around half of mortgages currently arranged on fixed rates expire in the next two years.
• The FCA recently asked lenders to consider what more they can do to encourage mortgage borrowers to think about switching to a less costly option where that is available.
• The FCA does not see the same poor pricing practices that used to be prevalent in the general insurance markets, where pricing was opaque and loyal customers could face dramatic price increases over time as a result of price walking.

The FCA’s expectations of lenders

The statement describes the FCA’s expectations of lenders and refers to a recent Dear CEO letter to all mortgage lenders and administrators which asked firms to consider what more they could do to encourage mortgage borrowers to think about switching to a less costly option where it is available.

The FCA also refers to the new Consumer Duty which requires all firms to focus on customer outcomes. In particular, the FCA states that whilst the consumer duty is not yet in force, firms should not wait to apply these requirements and should look for opportunities to support consumers to make the decisions they need to make. The regulator also states that firms should treat those who cannot switch fairly and support those in financial difficulties.

Going forward

The FCA will continue to track the number of borrowers who are not switching when it would save them money if they were to do so. Additionally, the FCA will consider the impact on consumers of increased costs where cheaper legacy deals are replaced with more expensive ones in a rising interest rate environment. Finally, The FCA will continue to engage industry to discuss the actions they can take to consider what more they can do to encourage mortgage borrowers to think about switching to a less costly option where that is available.