Research by regulator the Financial Conduct Authority found that fear of the application process was putting thousands of people off changing their mortgage lender.
Fear of the application process is acting as a barrier to changing mortgages for some people, while others claim they do not have time to switch or say they are happy with their current lender.
Regulator the Financial Conduct Authority (FCA) said its research suggested consumers could become better engaged with the switching process if they were given the right information at the right time.
It added that there appeared to be a case for intervening to help homeowners who had never changed their mortgage, and it will issue a consultation paper on potential remedies later this year.
Why is this happening?
The FCA’s Mortgage Market Study found that some consumers were choosing not to switch to cheaper deals despite being eligible to do so.
When fixed term deals end, such as a two-year fixed rate mortgage, homeowners are automatically put onto their lenders revert rate, often known as the standard variable rate (SVR).
But the interest charged on an SVR is significantly higher compared with the rates available to those who are prepared to switch to a new deal.
For example, while price comparison site Uswitch.com lists several best buy two-year fixed rate mortgages with rates of under 1.25%, SVRs typically charge interest of more than 4%.
Who does it affect?
The FCA estimates that nearly one in 10 mortgage holders have never changed their mortgage.
Its research found that people who did not switch mortgages were typically older than those who did, with 23% aged between 55 and 64 years old.
Recent homebuyers who had not changed their mortgage deal were also likely to have slightly lower incomes and live in less affluent areas than people who shopped around once their deal ended.
In addition, non-switchers were more likely to be single borrowers, indicating that where there were two names on a mortgage, people found it potentially easier to switch.
What’s the background?
Giving people the right information at the right time, without overwhelming them, could encourage more people to switch, the FCA said.
It found that while many consumers who had not changed mortgage deals were aware of the switching process, around 40% had never considered taking out a new mortgage with their current lender.
At the same time, only one if five could recall ever being contacted about switching or renewing their mortgage deal.But despite having never switched, homeowners said they would be prepared to change mortgage if they could save an average of £120 a month.
People said their main consideration in switching was being able to find the best deal for them personally, including being given information on the money they could save, and being given reassurance about other barriers they may face in the switching process.
Top 3 takeaways
1. More than 800,000 homeowners have never switched their mortgage deal despite being able to save more than £1,000 a year
2. People are not switching due to a lack of time, fear of the mortgage application process or because they are happy with their existing lender
3. The FCA is looking at potential intervention that will help more people switch deals