Treasury Select Committee (TSC) inquiry into Consumers’ Access to Financial Services

Following correspondence with the Committee Chair, Nicky Morgan MP, and a subsequent request to submit information to this inquiry from Committee Clerks, we hope the following submission below is useful to both Clerks and Committee Members in their inquiry. We would be more than happy to discuss further any aspect of this submission.

Introduction to Trussle

1. Founded in 2015, Trussle is the UK’s first exclusively online mortgage broker. We help first-time buyers and existing mortgage-holders save time and money securing a mortgage online. We offer free expert advice on the most suitable deal for your situation by scanning over 12,000 mortgage deals from over 100 lenders, then manage the subsequent application process with a simple online document submission process and timely alerts on the overall mortgage completion process. Critically, Trussle continues to monitor the mortgage market for its registered mortgage holders, and whenever possible, helps them switch to a better deal, so they never pay more than they should.

2. We pride ourselves in having no lender bias, and always recommend the most cost-effective mortgage available. Unlike other mortgage brokers, our mortgage advisors are not compensated according to the level of commission from the mortgage provider and have no incentive to recommend anything other than the best-value product. Trussle is a free service, and only receives a fee from the lender when the customer is happy to complete based on our expert mortgage advice.

3. As part of its work to improve the mortgage market more broadly, Trussle publishes copious amounts of proprietary data and analysis into key issues as set out in our annual Mortgage Saver Review, available to view here. This has culminated in the development of what Trussle believes to be the most effective solution to such issues: the ‘Mortgage Switch Guarantee’ as expanded upon below.

The Scale of the Problem

4. As set out in our Mortgage Saver Review and the Financial Conduct Authority’s (FCA) Mortgage Market Study Interim Report (May 2018), consumers face a number of barriers in finding a suitable mortgage deal. These include: the difficulty of comparing deals due to the varying ways in which they’re displayed; poor communication from lenders; and a lack of understanding of the complex jargon used by lenders.

5. For the average borrower, the difference between a market-leading deal and the average Standard Variable Rate (SVR) (set by each individual lender) once the initial term interest rate ends is on average £350 a month or over £4,500 a year.[1]

6. The FCA and Competition and Markets Authority (CMA) recognise that there are more than 800,000 people who, by not switching lender, overpay on their mortgage by up to £1,000 a year due the inherent ‘loyalty penalty’ within the sector.[2] This is a significant sum, but Trussle researchi shows that this figure drastically underestimates both the scale of the problem and the potential savings greater clarity and ease of switching will bring.

7. Despite mortgages being the largest source of debt for households in the UK and Trussle research shows that that two million homeowners are losing £9bn a year because switching mortgage isn’t clear or simple. Despite this, other aspects of financial services have seen significantly more attention from policymakers in pursuit of better consumer outcomes.

8. Trussle research has found that the key causes of borrowers receiving an unfair deal are as follows[3]:

●        Lack of education around mortgage pricing and terminology;

●        Lack of awareness about when and how to avoid their lender's SVR; and

●        Lack of access to crucial information about their current mortgage.

9. This wide scale inertia in the mortgage market is one of the most pressing consumer issues that exists today. It must be addressed urgently. This will require the support of Government, regulators and lenders. 

Vulnerable consumers and regional impact

10. Research has shown that those who are on the SVR tend to be on lower incomes, have less than degree level education and are older[4]. These groups are therefore paying more for their monthly mortgage payments than those on the best rate deal (Appendix I).[5]

11. Further to this, there are significant regional variances on the amount of money that can be saved across the UK when switching from the lender’s SVR to the best rate deal. This ranges from almost 7% of average income in Northern Ireland to 17% of the average income of a Londoner (Appendix II & III).iv

Mortgage Switch Guarantee

12. As part of the solution to such issues, Trussle proposes the adoption of a ‘Mortgage Switch Guarantee’; a set of commitments for lenders across the industry to ensure transparency for borrowers at each step of the home ownership journey.

13. It is based around the following three principles:

●        Contact borrowers electronically and by post three months before their initial rate period ends;

●        Provide borrowers online access to key mortgage information; and

●        Display the True Cost of the deal’s initial rate period.

14. The combination of greater cost transparency, product accessibility and the increased use of ‘prompts’ from lenders has the potential to dramatically improve outcomes for mortgage consumers.

15. Such measures have significant support amongst consumers, with 74% of consumers wanting to see all fees and charges rolled into an easily comparable total true cost for the initial period of the debt, and 73% of consumers believing that lenders should be legally required to provide key mortgage information online, including outstanding balances. 83% also want to receive a letter from their lender 3 months before the end of their initial rate.

16. As a set of principles to be followed by the mortgage industry, the Mortgage Switch Guarantee also does not have the same heavy-handed implications and mandatory timelines for industry as see in the Current Account Switch Service (CASS) and Energy Switch Guarantee.

17. Following the launch of CASS, there was a 19% increase in the number of people switching current accounts, clearly highlighting the benefits that assurances, transparency and additional publicity can have in ensuring consumers secure the right deal for them.[6] Given the substantial size of the mortgage loyalty penalty, this uptick would result in a significant benefit to thousands of consumers. 

Conclusion

18. Despite other initiatives and product offerings coming to market, we believe that the principles as set out in the MSG are an essential component of any reforms to the mortgage ecosystem in the UK.

19.Trussle is eager to work alongside lenders, policy makers and the regulator to discuss the wholesale adoption of a Mortgage Switch Guarantee within the mortgage market. Significant buy-in from across the policy environment is needed to ensure it is as effective as possible in securing holistic support from key industry players and creating a better future for borrowers.

Appendix I: Vulnerable groups paying more for their monthly mortgage repaymentsiv

Appendix II: Regional variation of potential savings between the average SVR & best rate dealiv

Appendix III: Regional variation of potential savings across the UK