The Intermediary – June 2025 - Flipbook - Page 12
RESIDENTIAL
Opinion
Changing what’s
possible for the
customer journey
M
ay saw the
Financial Conduct
Authority (FCA)
publish its
Mortgage Rule
Review (MRR)
consultation paper, which aims to give
consumers “more choice” in how they
deal with their mortgage.
A central focus is making the
process of switching lender at
remortgage easier, faster and with a
lower threshold for underwriting and
the consequent paperwork it entails.
At the end of a fixed term, many
borrowers now use firms’ internal
product transfer or ‘rate switch’
product. According to the regulator,
out of 1.6 million who remortgaged
in 2024, some 83% stayed with their
existing lender and 17% remortgaged
to a different provider.
The paper notes: “There are several
barriers or transaction costs, both in
time and money, that make external
remortgaging less aractive, even if
cheaper options are available.
“Customers may make a conscious
choice to stay with their current
lender because of these. These barriers
can include conveyancing, valuations,
engaging with a mortgage adviser and
affordability assessments. By contrast,
these don’t apply when completing
an internal product transfer, and
an affordability assessment is only
required where the change is material
to affordability.”
This recognises an unintended
consequence of the existing regulatory
regime. Essentially, consumers are
disincentivised from shopping around
and may end up paying more than is
necessary for their mortgage.
The proposed amendments have a
positive logic behind them, though
we wait to see the final detail before
assessing how they work in practice.
12
The Intermediary | June 2025
AHMED MICHLA
is head of business
development at Cotality
The FCA is definitely on the same
page as much of the industry when
it comes to the way that data use and
digitalisation is changing what is
possible for the customer journey.
Automated implications
The paper acknowledges that there
is “significant momentum to digitise
the home-buying process,” including
speeding up conveyancing and HM
Land Registry processes.
Alongside existing tools such as
automated valuations, credit file
and HMRC checks, and the potential
efficiency and innovation that can be
delivered through Open Banking, the
regulator wants to explore “options
to streamline affordability testing
requirements where the customer
is remortgaging to a cheaper deal on
similar terms.”
This has implications for
affordability, but for lenders there
is also property risk that has to be
considered. Where a lender engages
a customer in a straightforward
product transfer, its understanding
of the capital value, title and property
condition – within whatever bounds
deemed necessary at the point of
origination – is as complete as
it can be.
In the event that a borrower
transfers via a similar product switch,
on the same or similar terms, the new
lender will be relying – at least partly
– on the existing one’s underwriting.
The affordability assessment, under
the FCA proposals, will be based on
payment history – the more robust,
the lower the implied risk, is the
theory. Where payments are lower
following a switch, logic should
dictate that the borrower can pay.
Relying on another lender’s
assessment is separate from this.
Just as a borrower’s financial
circumstances may have changed since
their last assessment, so may have the
property’s condition and value.
Flood risk is dynamic, with new
areas becoming exposed each year.
Title assessment, including rights of
way and boundaries, as well as land
search results, can be cursory all the
way through to comprehensive.
Permied development rights
(PDR) allow for material changes to a
property’s construction, without the
need for a change to be recorded. Trees
grow, bamboo, Japanese knotweed and
other organic threats to a property’s
structural resilience change quickly.
Decision-making support
Lenders will need new sources of
risk data to support their lending
decisions. As the consultation paper
highlights, this data is increasingly
available in a format that becomes
useable and meaningful at both an
individual property level and for
a mortgage book. But this is only
one side of the coin when it comes
to accessing true value from these
sources. Lenders must have systems
and technology capable of integrating
with new data streams and pulling a
sufficient number of elements out of a
far wider data pool.
Data is only as good as the tools
to make use of it – and the reality is
that much of the mortgage industry’s
systems are not set up for this new
world yet. A wholesale system
replacement across the entire market
is a daunting prospect, yet if lenders
are to facilitate the proposed changes,
newer systems must be put in place to
protect lenders’ risk exposure. ●
