If you were to become self-employed, you would hire a qualified accountant. If you wanted to write a will, you would hire a qualified lawyer. If you were not well, you would obviously seek advice from a qualified doctor.
Using this logic, then, it makes sense that when it comes to your biggest asset – your home – you should speak to a qualified mortgage advisor: when looking for a new mortgage deal , or want to remortgage or sell – but also in the event of a change in circumstances which could have a direct impact on the property you own.
But all too often people don’t, especially when they come to the end of a fixed rate and haven’t yet wondered if their mortgage can be used to improve their financial situation.
The consequences of not knowing about your mortgage and not seeking advice mean that homeowners are languishing on the same expensive standard variable rate, or they go to a comparison site to try and find a cheaper mortgage deal that may not suit their particular and unique situation. This is called going straight to the lender, or execution only… and if that sounds scary, it should be. Many will not be aware of the implications.
Staying on an SVR can cost £ 360 in a single month for an average house.
You don’t know what you don’t know.
On the other hand, for lenders, loyal customers are essential for doing business. Acquiring clients costs money and time in what is already a very competitive mortgage market. It seems logical that for these companies the way to retain customers is to make it as easy as possible for them to stay on by automatically putting them on a product transfer after the initial deal is completed.
In fact, product transfers between lenders are increasing, perhaps a sign that there is a consensus that this is fair and appropriate for consumers and for businesses – a happy deal. Product transfers are becoming more and more popular with lenders, and this month Vida even launched a new portal to make switching even easier.
This ecosystem, where a customer never seeks advice and automatically receives a product transfer, has never been called into question. Until now.
The point is that if a product transfer is granted to an involuntary mortgage holder, that is, someone who has not sought advice even though it still fits their situation, it is a missed opportunity to do good for a client. That’s not to say that product transfers are inherently bad, but there has been a recent and dangerous trend of homeowners getting locked into new mortgages with exit fees, but without serious financial advice.
Sometimes it’s true, a product transfer will be the right decision for a client, but it is fundamentally wrong for lenders to assume that a client’s situation is exactly the same as when they took out an original mortgage contract. . So why not seek advice anyway to be sure?
Of course, borrowers who stay with their existing lender should be cheaper. Because there is less risk for the lender when lending to people they already know to be reliable payers – no transfer fees, no changes to the land register, rarely even a physical investigation. But often the borrower or advisor makes the product transfer purely for convenience, which means that a product transfer can be the worst thing to offer them, although it can mean less paperwork.
When you have the whole market to look at, by failing to inform a customer of their options – that is, products potentially more suited to their situation – you are failing in your duty of care to that person. Keeping them attached to a product that may now not be right for them, even if it may save you money from a customer acquisition standpoint, is unethical.
Product transfers – when issued stealthily – are effectively the loyalty penalty of the mortgage world. And the consequences of this are serious. Since a mortgage is probably the most important financial deal you can make, when the going gets tough, you can become homeless.
But what is causing the growth of this market? Why are product transfers becoming more and more popular when they are so unsuitable for so many? The Covid is partly to blame.
Those who were put on leave during the pandemic, or who lost their jobs due to layoffs, and even those who saw their hours cut, might have been made to believe the remortgage would be difficult.
While this may be true, what is clear is that these people have undergone a drastic change in circumstances. The kind of change that requires serious, personalized advice about their mortgage. A product transfer ignores all of this, or at least involves such low level controls that the need to reassess the mortgagee’s resources is effectively bypassed.
Opting for product transfers rather than remortgaging also ignores the fact that two people who, for example, have been on leave, with the same salary, may have very different spending and borrowing habits.
Advice – not a decision tree, but human advice – must become the norm. Talking to a qualified advisor or broker gives a client the best possible odds, looking at the entire market to see which options work best for them rather than sticking to a deal that can now be totally bogus. .
Without advice and advisers, consumers are left completely in the dark about other options available to them that could be much better suited. Not necessarily cheaper each month, but definitely better value overall.
It is simply unacceptable now not to do the right thing for customers. FCA is currently consulting on ways to increase consumer protection in retail markets and has proposed a new ‘duty to consume’ that it says would require a big change in culture and behavior on the part of businesses. .
If the FCA went further and opened up the simplified accessibility rules, more lenders would be able to offer offers to new customers at the same rate or less than their current offer with another lender without breaking the employment rules / continuous income.
Given the far-reaching ramifications of Covid, this will be a problem for many.
This is not the dreaded self-certification mortgage of the 2000s. Rather, these rules are designed to allow borrowers to use their past performance and behavior as evidence of affordability. Many lenders are already using open bank data to help underwrite claims – clearly the best indicator and also fraud-proof – it seems inevitable that this method of proving a person’s affordability will soon become the norm. and return payslips and income and expense forms to history.
And while customer service is fundamentally the right thing, in the long run it can reap dividends through increased and meaningful customer loyalty. Customers who know they are receiving unbiased and comprehensive market advice on finding an offer that truly matches their current situation.
A better-informed customer will know how to approach you when circumstances change. They will quickly learn that the advice you give is valuable and important, and that they should listen.
The FCA talks a lot about responsible lending, but it is imperative that our industry thinks about what can be done to encourage, promote and enable more responsible lending. This means more education, more choice and not turning a blind eye to increasing profits at the expense of customer results.
And certainly not expert, qualified mortgage professionals who take great pride in achieving the best possible outcome for their clients.
Ross Boyd is Managing Director of Dashly