Plans to shorten the procedure for switching mortgages in the UK to just seven days have little chance of being implemented effectively without delays or compromising regulatory checks, according to lenders and brokers.
The Department for Business, Innovation and Skills (BIS) announced in May that it was looking to shorten the time it takes consumers to switch between mortgage deals to just seven days, and launched a consultation into the process.
However, few within the mortgage industry think it is a good idea with a member survey from the Intermediary Mortgage Lenders Association (IMLA) showing that 81% of lenders and 66% of brokers thinking it is unworkable.
Among lenders, 59% believe that seven day switching is a bad idea and just 22% believe it is positive. Brokers are slightly less cynical about whether consumers will benefit from the potential reform, but 41% say the proposals are a bad idea and 33% saying they are welcome.
Lenders and brokers both identified several reasons as to why these proposals are likely to run aground. When asked what difficulties the changes could cause, 78% of lenders identified delays getting valuations, 70% cited difficulties fulfilling risk and regulatory requirements, and 44% said affordability checks will take too long.
Some 78% of brokers singled out fulfilling risk and regulatory requirements as the principal difficulty in consumers switching loans within a seven day window while 37% said automated valuation models would be inaccurate.
The Council of Mortgage Lenders (CML) has also raised concerns over the lack of clarity about the point at which the seven day countdown would begin, the significant size and value of a mortgage product and the fact that around 10% of borrowers successfully remortgage every year as it is.
IMLA’s own research also revealed that lenders and brokers both view remortgaging as the area of the market that has the best future potential for growth for the remainder of 2016. A total of 59% of lenders and 43% of brokers predicted the remortgage market would set the pace during the second half of 2016, relegating the first time buyer market, tipped for the greatest growth prospects in the second half of the year, into second place.
The findings are backed up by the latest CML data, which showed remortgage lending has expanded significantly over the past 12 months, with August’s £5.9 billion of gross remortgage lending standing 41% higher than a year earlier.
‘These findings show that the industry is clearly sceptical about the chances of the seven day switching scheme being implemented effectively in the mortgage market, and whether it will indeed benefit consumers,’ said Peter Williams, executive director of the IMLA.
‘The continued strength of lending would certainly suggest that consumers are not shy in coming forwards to remortgage under the current rules of engagement, which aren’t standing in the way of favourable rates and strong competition,’ he pointed out.
‘Lenders and brokers both agree that balancing key parts of the approval process, such as getting valuations and fulfilling risk and regulatory requirements, will be difficult to reconcile with reducing switching time to just seven days. It is clear the industry believes reducing mortgage switching to such a short window is incompatible with responsible lending practices,’ he explained.
‘While consumers may benefit from being able to switch a bank account or broadband provider in a short timeframe, the fact is that a mortgage is a much more significant purchase. It is important that the lending process makes adequate checks to support positive consumer outcomes, and it should therefore not be rushed,’ he added.
