New plans drawn up by the government include offering the option of a mortgages being switched, within seven days, to a new mortgage provider.
Currently the process can take upto 3 months to switch mortgages to another provider. Ministers state that around 60% of mortgage borrowers are unable to switch as quickly as they would like. The consultation wants to look at whether the bank account transfer process can be replicated in the mortgages industry.
Digital Economy Bill Driving Mortgage Changes
The government’s Digital Economy Bill was announced in the Queen’s Speech on Wednesday May 18. This is the bill that is driving the new suggested change. Along with the mortgages shakeup the bill is also looking at speeding up other practices such as forcing phone providers to unlock phones for free at the end of their contracts.
The energy market and broadband are also under scrutiny with the aim of the bill to speed up business practises to save the end consumer money and reduce unnecessary cost to the consumer.
Sajid Javid, the business secretary, said: “I want to give consumers more power over switching providers for the services they rely on to make sure they are getting the best deals.
“At the moment the time it takes to switch depends on which service you are switching. I want to hear what consumers and businesses think of making switching quicker and more consistent across all markets.”
I want to give consumers more power over switching providers for the services.
Could Speeding Up Mortgage Switching Work?
While in theory the practice sounds like a positive one and could potentially save consumers a lot of money by switching their mortgages from provider to provider, There is complication in the process compared to switch bank accounts for example.
The new mortgage lender would need to perform affordability checks in line with the rules brought in last year by the Mortgage Market Review and some lenders will also require surveys which would be difficult to do in seven days. This could make the process a lot harder of switching mortgage providers.
Paul Smee, director general at the CML, questioned whether such a short deadline was realistic.
“We fully support the switching principles, and our members have long recognised that speed – as well as cost and service – is frequently valued highly by remortgage customers," he said.
"However, whether a seven-day target is realistic, given tasks that lenders need to complete to fulfil risk and regulatory requirements, depends on when the clock starts ticking.”
Repayment charges and other charges could also be bought in by mortgage providers to cover the costs of mortgage providers having to carry out the necessary work especially on low value mortgages.
Another potential issue could be that if people start to regularly switch mortgages this could cause numerous credit checks which in turn could affect their credit rating, subsequently damaging their long-term prospects.