Becoming a homeowner is a huge and happy milestone in most people’s lives. But the journey there has never been more difficult.
If trying to keep up with soaring house prices wasn’t hard enough, aspiring homeowners often face a painful and fractured experience trying to secure a mortgage.
This is not going unnoticed by policy-makers. Communities secretary Sajid Javid recently threw his hat in the ring, announcing plans to make buying and selling homes “cheaper, faster and less stressful”.
The move comes after a wave of research highlighting the difficulties faced by homebuyers. This includes our own recent study, which found that one in 10 first time buyers are actually reduced to tears by the mortgage application process.
A knock-on effect of the “mortgage nightmare” experienced by so many buyers is switching inertia.
Effectively, the stress of applying for the first mortgage causes borrowers to bury their heads in the sand, and put off switching their mortgage.
This means that at the end of their initial deal, they end up on their lender’s high-interest standard variable rate (SVR).
Our calculations show that SVRs are costing British homeowners close to £15bn annually in excessive interest. This is enough to fund a new Crossrail project every single year.
And the huge sum demonstrates just how critical it is for the mortgage industry to do more to help and protect consumers.
There are several ways the industry could tackle the problem.
The pricing puzzle
Consumers are shown a headline initial interest rate, but that’s where the consistency between lenders ends.
Some will clearly display the SVR that a customer would be moved to when their product term ends, some will bury it in the small print. Some will show an overpayment allowance, some won’t.
Depending on the lender, you might be shown a “mortgage fee”, a “booking fee”, an “arrangement fee”, or perhaps a “product fee”.
Companies should consider how mortgages are priced and advertised.
Without standardising the way they display mortgage deals, comparing the true cost of one product over another is extremely difficult. It’s also time consuming for anyone who is unfamiliar with mortgage jargon.
To make matters worse, you’ll encounter these issues all over again when it’s time to remortgage.
Borrowers unsure when their initial term ends are also unable to rely on their lender going to any lengths to ensure they know when to switch.
In our recent research, we discovered that there’s no agreed standard when it comes to lenders informing their customers that they’re about to be transferred to the higher interest SVR.
Some lenders email their customers, some phone, while others – including one of the UK’s largest mortgage providers – send just one letter through the post.
Forgetting to switch from that particular lender at the right time would prove a costly mistake – £508 in extra interest per month if you were to have an outstanding mortgage balance of £300,000.
Across the UK, we estimate there to be three million borrowers on SVRs, equal to the entire population of Wales, paying an average £4,900 more than they need to in interest each year.
Strength in numbers
It’s time that the mortgage industry worked together to improve this situation for borrowers.
This is why Trussle is pushing for the introduction of a Mortgage Switch Guarantee, to make mortgages easier to understand and improve the switching process for consumers.
Since we first proposed this in July, the idea has been turning the heads of policymakers, industry bodies, and regulators – who we are in ongoing talks with.
Rebalancing the relationship
These proposals aim to rebalance the relationship between mortgage lender and mortgage borrower.
It will end the practice of financially penalising consumers for their loyalty to one lender, while supporting the borrower’s right to control their greatest financial asset.
Alleviating the pain
We know that lasting change can be achieved – having seen the successful introduction of the Energy Switch Guarantee and Current Account Switch Guarantee.
The latter has prompted more than three million people to switch to more affordable providers.
It’s now time we provide mortgage borrowers with the same level of support and protection.
We need to transform this nightmarish process to a painless and pleasant part of the homeownership journey.