Lenders are being encouraged to commit to ‘mortgage switch’ policies to help customers avoid moving onto more expensive standard variable rates at the end of their term.
Encouraging borrowers to remortgage or transfer to a different lender at the end of a fixed-rate period has been the focus of recent ‘switch policy’ campaigns independently supported by online brokers Habito and Trussle.
Failing to switch at the end of a fixed-term costs British homeowners £9bn every year according to Trussle’s founder and chief executive, Ishaan Malhi. Currently, there are no guidelines for lenders to give customers any notice that their fixed term is coming to an end, or advise that they could save on their mortgage repayments by switching.
Research by Habito found that only one of the UK’s top six mortgage lenders have committed to giving customers three months’ notice, and only half said they ‘tried’ to notify customers before the end of their term, usually with a postal letter.
Significant savings for borrowers
The standard variable rate is the most common reversion rate offered by lenders when a fixed-rate mortgage product ends. In many cases, it can cost borrowers more than double what they were paying on their fixed rate. According to Ishaan Malhi, “one in four mortgage holders are sitting on expensive and arbitrary SVRs, which is £375 per month per household or £25m per day, on aggregate”. Independent research by Habito has found that 55% of mortgage borrowers could save nearly £300 per month by switching.
Plea for government support
Trussle has taken its plea for making the switching process fairer to parliament, calling for a ‘Mortgage Switch Guarantee’. The broker wants a law introduced that will force lenders to display the true cost of a mortgage – including the service costs and hidden fees – and to alert borrowers to this three months before their current term ends.
Shadow economic secretary to the Treasury Jonathan Reynolds MP has backed the plea stating that the number of people defaulting to the SVR is a “genuine issue” and has called on the financial sector to “work better to serve our people”.
Only last year Citizens Advice launched a super-complaint, prompted by the treatment of vulnerable consumers ending up on SVRs, with the Competition and Markets Authority, calling for the ‘loyalty penalty’ paid by mortgage borrowers to be addressed.
Habito calls for mandatory communications
Habito is calling for all lenders to adopt the four months’ notice pledge to advise their borrowers when it’s time to switch. Daniel Hegarty, founder and chief executive of Habito, said: “We’re calling for mandatory communications notices from all mortgage lenders and banks starting at four months prior to the initial period ending, and across email and text.”
The broker has committed to giving all customers four months’ notice to switch their mortgage before the end of their existing fixed-rate deal.
Brokers argue most lenders are already advising customers to switch
In response to Habito and Trussle’s claims, many brokers argue that lenders are already doing this for their customers. David Hollingworth, associate director of communications at London and Country Mortgages, commented: “Lenders have become much more proactive in their retention strategies. It’s likely that the lender is getting in touch and giving them some product options that they can switch to.
“For brokers, it’s a case of highlighting the fact that in many, many more instances now you can take into account the existing lender with a product transfer option.”
Hollingworth added: “And in most cases, brokers can put those into place for the customer. The customer is getting the cross-market viewpoint that they wouldn’t get if just going straight to the lender.”
Peter Brodnicki, co-founder and chief executive of Mortgage Advice Bureau, said: “Anyone who doesn’t do that already is an idiot – and you can quote me on that. Most lenders start a contact programme anywhere between six to three months out. I can’t imagine getting to a point at three months where the lender hasn’t been in contact.”
According to Dominik Lipnick, director at Your Mortgage Decisions, lenders and brokers should be putting “more thought” into how options are communicated to customers. “When a scheme is coming to the end, clients should consider not only what scheme to choose next but review the mortgage term as a whole, as well as associated protection policies.
“My fear is that just giving clients more notice of a scheme coming to the end will not necessarily mean that a full review is provided.”
While the onus is being put on lenders to commit to better servicing their customers, homeowners would be well advised to take matters into their own hands. Proactively managing their mortgages and scheduling a mortgage review date in the diary three or even four months before the end of their mortgage term, should be part of every borrower’s future financial planning.