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Govt could introduce 7-day mortgage switching

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Borrowers could be allowed to switch their mortgages in seven days, under new plans being consulted on by the Government.

It has called for evidence to find out how long it takes people to switch providers across a number of markets, including mortgages.

The Government will meet with industry bodies to discuss the plan, which is part of the incoming Digital Economy Bill, over the coming months and the proposals could be in place by next year.

Business secretary Sajid Javid says: “I want to give consumers more power over switching providers for the services they rely on to make sure they are getting the best deals. The government is committed to creating a system that works for consumers and makes markets more competitive.

“At the moment the time it takes to switch depends on which service you are switching. I want to hear what consumers and businesses think of making switching quicker and more consistent across all markets.”

But mortgage professionals are split on whether it could be possible in for mortgages.

Council of Mortgage Lenders director general Paul Smee says: “We fully support the switching principles, and our members have long recognised that speed – as well as cost and service – is frequently valued highly by remortgage customers.

“However, whether a 7-day target is realistic, given tasks that lenders need to complete to fulfil risk and regulatory requirements, depends on when the clock starts ticking.”

SPF Private Clients chief executive Mark Harris says: “While in theory seven-day mortgage switching sounds attractive and makes for a wonderful soundbite, the reality could be very different. Currently, the best-case scenario for switching mortgage is one month but it typically takes two months and could take as long as three months.

“Under the proposals, not only will borrowers be relying on lenders to process the case in seven days, the bank will also require a valuation of the property to be carried out. This will be less of an issue on lower loan-to-values as automated valuation models are available. The latter would have to become more commonplace in order to make a seven-day switch achievable.

“If the borrower gets into the habit of switching their mortgage frequently because it is easier to do so, then numerous credit checks could affect their credit rating, subsequently damaging their long-term prospects.

“Lenders model pricing on account of how long they anticipate borrowers staying with them so if there is a lot of chopping and changing as borrowers become more short-termist in their outlook, then pricing and early repayment charges could be forced upwards.”

My Home Move group distribution director Dev Malle says: “In principle we support the Governments intentions behind this proposal. Yes there are challenges but the concept will hopefully drive everyone to find solutions to those challenges. From a legal perspective, with a willing consumer there is no reason why a switch could not happen in seven days as long as the lender on one side delivers a timely mortgage offer (for which they will require either an AVM or valuation report) and on the other side, the existing lender provides an up to date redemption statement.

“Using online file management systems for the consumer and involving the broker will of course make the process streamlined and will avoid paper based postage delays too. This initiative will also help change the out dated approach for a large number of remortgage completions to take place at the end of the month and with daily interest this is just a bad habit the industry lives with. The reality is the consumer may not want to switch in 7 days, however, the ability of doing so will help change the perception that the process is a painful one.”

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  • Mystified 25th May 2016 at 9:59 pm

    So with the 7 day cooling off period introduced recently, in what time zone is this possible. Seriously, take advise from those in the industry before you come up with yet another idea just for the sake of finding something to do !

  • Chris Hulme 25th May 2016 at 12:32 pm

    The reality of checking document and underwriting alone (especially in this world of the onus to check and prove affordability) takes longer than 7 days.
    I suppose the question here would be “At what point does the 7 day stopwatch start ticking?” If that is only once a lender has the application, documents and valuation, then 7 days is still a push given the legal issues faced. Many lenders require 5 days notice for funds to be released and others take longer than that to issue redemption statements. If you ask the “free legals” solicitors to do anything quickly, a blank look is often followed by a reason why it cant be done….
    As Andy says below, Governments can introduce anything they want but rarely do they have the full practicality considered when they do make such changes.

  • Steven Balmer 25th May 2016 at 12:28 pm

    To me it sounds like another politician with very little knowledge of the market asking the market what it thinks so he can sound informed. Pointless bit of reporting really other than to enhance his presence as business secretary.

  • John Tidswell 25th May 2016 at 12:21 pm

    I think he should think before he open his mouth and makes a ridiculous statement like that. It can take some Lenders 7 days to look at a pay slip that has been uploaded to them. He really has no clue how the mortgage market works, I would be surprised if he actually knew what a mortgage is.

  • Paul Faithfull 25th May 2016 at 12:06 pm

    Fairly typical of this government to have another ill thought idea that as Mark points out will be almost impossible to implement and may work against the consumer in the long run.

  • Andy Wilson 25th May 2016 at 11:56 am

    The Government can introduce it whenever they like, but until the lenders can effectively implement it then it will be a complete waste of time.

    If lenders could achieve such a quick turnaround would they not be doing this already? I remember GMAC introducing a lightning fast mortgage offer service but those cases still got bogged down in the legal process afterwards.