The Financial Conduct Authority (FCA) has today published an interim report on its review into the mortgage market, which discusses the good, the bad and the ugly of the sector. While the FCA found that a lot of the market is working well, they reported that 30% of consumers still find it difficult to find the cheapest deal for them and raised continuing concerns about mortgage prisoners.
With mortgage debt accounting for 80% of all UK household debt, it's easily one of the most important financial markets around today, which is why the FCA is taking a closer look at how it works (or doesn't). Following this report, they will be seeking to help make it easier for consumers to find the right mortgage by developing more tools and encouraging greater innovation, among other things.
Among the proposed tools are means by which consumers can better compare mortgages – something that anyone who visits this website frequently should be more than familiar with, considering our unbiased charts and personalisable mortgage search. It's always important to do your research, but especially now as "mortgage rates are still on the rise and the average two-year fixed rate is at its highest level since July 2016," according to our finance expert Rachel Springall.
"While the pace of the increases has slowed down, the changes are still causing a domino effect among lenders," she said. "This week Atom Bank, Barclays, Santander and Virgin Money increased prices on a selection of their two-year fixed rate deals. There are still some deals on offer with rates below 1.40% in the two-year fixed market overall, but they typically carry high fees and may not be the right deal for all borrowers."
Rachel went on to remind consumers that "the lowest-priced deal is not always the best choice for borrowers, based on true cost. Customers would need to weigh up the rate, fees as well as any incentives to find the right deal and not be blind-sided by the lowest rates alone."
Finding the cheapest deal is one thing. Finding one that will accept you may be another thing entirely. The FCA warned that while most consumers are well engaged, switching from deal to deal to try and keep finding the lowest rate, a "significant minority" stay on their lender's Standard Variable Rate (SVR) "for an extended period".
With this reversion rate often higher than any other deal on the market, these consumers would very likely benefit from switching. Indeed, the FCA estimated that around 800,000 customers who remain on a reversion rate for more than six months could save around £1,000 per year by switching to a new two-year fixed rate mortgage.
However, even borrowers who always make their mortgage repayments may not find remortgaging that easy, with an estimated 30,000 customers unable to switch. These mortgage prisoners are trapped most often because they took out an (interest-only) mortgage before the financial crisis and now no longer fulfil the much stricter lending criteria.
"Highlighting the plight of mortgage prisoners is important, as not everyone will be able to move their mortgage if their circumstances change," commented Rachel. "Even if borrowers can demonstrate that they could afford a cheaper deal based on lower repayments, they could still be turned down if they are unable to prove they can cope with future interest rate rises.
"Tighter affordability checks are in place to prevent borrowers from getting a mortgage beyond their control, but there will still be consumers out there whose circumstances change and who could end up defaulting. The only options left for borrowers stuck on their deal would be to talk to their existing lender and seek a financial adviser to figure out where to turn."
Whether you're a 'prisoner' of your mortgage or simply seeking a better deal, it's always a good idea to keep a close eye on the mortgage charts – especially as rates may soon be increasing even more if base rate were to go up next week
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