LONDON (Reuters) - Britain’s markets watchdog is proposing to make it easier for homebuyers to find the best mortgage after finding that nearly a third of borrowers fail to find the cheapest deal.
The Financial Conduct Authority (FCA) on Friday published the interim findings of a review into Britain’s trillion-pound mortgage market, launched in December 2016 to determine whether customers could obtain better deals and if links between industry players limit choice.
“We found that there are limitations to the effectiveness of the tools available to help consumers choose a mortgage,” the interim report said. “This makes it difficult for a significant minority (we estimate around 30 percent) of customers to find the cheapest suitable deal.”
These consumers could have saved about 550 pounds ($750) a year if they had bought the cheapest product. Some borrowers who could save money by switching provider either do not or cannot, it added.
The high cost of buying a home in Britain, exacerbated by a housing shortage, has put ownership out of reach for many people, and the government is under pressure to address the problem.
“For many, the market is working well with high levels of consumer engagement,” Christopher Woolard, FCA executive director of strategy and competition, said in a statement.
“However, we believe that things could work better with more innovative tools to help consumers.”
There are about 30,000 “mortgage prisoners” who took out interest-only loans before the financial crisis, but are now unable to switch to cheaper deals because of tougher rules.
The FCA said it wants to resolve this “legacy” issue and will explore solutions with industry and consumers.
UK Finance, Britain’s main banking industry body, said the FCA showed that the market was working for the vast majority of borrowers.
“We note the FCA’s points regarding perceived areas of weaknesses within the market, particularly around customers who currently may be unable to switch products,” it said.
The report found little evidence that current commercial arrangements between firms in the market, such as brokers that have agreements with estate agents or a housing developer, are harming customers.
The FCA recommends making it easier for customers to identify the right mortgages and best brokers at an early stage and said it would work with the sector to develop metrics to help consumers make comparisons.
“The proposed work to help consumers understand the relative strengths of brokers is innovative and could have wider application in other intermediated sectors,” said Andrew Strange, a financial services director at consultants PwC.
Helping existing customers finding the best deals as interest rates rise should be a top priority for firms, Strange said.
The interim findings do not propose any changes to the sector’s handbook but explain the watchdog’s thinking.
A final report will be published around the end of the year, with any recommendations for rule changes put out to public consultation.
“Mindful of the regulatory change that mortgage firms have experienced in recent years, we will not seek to make further changes to those interventions that appear to be working well,” the FCA said.
($1 = 0.7378 pounds)
Reporting by Huw Jones; Editing by David Goodman