Raising rates because ‘we’re busy’ – how does that fit with the new Consumer Duty?

This is not about lender ‘bashing’ for the sake of it, but it comes from a place where we have a genuine desire to see service and capacity levels improve, because quite frankly, our clients will end up paying less for their mortgage finance if this can be achieved.

At the moment, of course, the opposite is true. Borrowers are paying more, not just because ‘rates’ – a somewhat nebulous term at the best of times – are rising, but because lenders have upped mortgage product rates to a point far in excess of where they should be.

This decision has been taken in order to stem mortgage applications but it has done nothing of the kind. Instead, it has merely resulted in rate increases being followed by rate increases, with applications still flowing through, which leads back to the same situation but with increased costs for borrowers.

What should have happened was for the bigger lenders to take the lead from their smaller building society counterparts, who recognised that pulling out of the market for new applications – just for a small amount of time – would allow them to reset their service capabilities, to deal with existing business and (ultra-importantly) mean no tit-for-tat rises would be required by competitors.

Unfortunately, for the larger high-street operators this hasn’t happened which is why the ‘service/operational crunch’ that started this ‘crisis’ is still very much with us, but we now have a hugely-inflated set of mortgage product rates that borrowers somehow have to deal with, and pay for.

Despite words to the contrary, price rises are not driven wholly by increases in swaps or Base Rate – they may be partly driven by this, but you don’t get to a point where you see a quadrupling of mortgage costs, even more, in 10 months, especially when Base/swap rates haven’t risen by anywhere near as much.

Instead, this has been an ill-judged strategy to deal with the fact lenders are under-resourced and seriously ill-equipped to deal with the volumes they have received, and are still, receiving. It is also driven by a management strategy which does not wish to countenance closing the doors and playing catch-up, because there is a great deal of profit to be made in the market by choosing to do otherwise.

We are a few weeks away from every regulated business – including lenders – having to provide an implementation plan regarding their approach to the Consumer Duty. Which might lead you to ask how they will justify their current approach to the regulator? How does raising rates because ‘we’re busy’ produce the best outcome for the consumer, when it’s likely to mean they end up paying significantly more each month because of this decision? We’ll leave that with the regulator to work out.

But, in the spirit of co-operation and in recognition of the fact lenders are unlikely to pause what they are doing, what can be done to help us all out, particularly borrowers who are the ones paying considerably more for their mortgages than they should be?

First up, and this is not normally an area you would find advisers being too supportive of, but lenders need to do more in the product transfer (PT) space. For a start, they should be making product transfers available to all existing borrowers six months before the end of their existing deal, allowing clients to secure that rate as early as possible rather than take a chance on what rates will be like in six months’ time.

Secondly, given that PTs are – or at least should be – the type of business which requires the least amount of work, why do we still get so many questions with them? There should be zero underwriting with PTs meaning the resources required to process them should be minimal.

Some lenders still require a raft of information for a PT, asking a multitude of questions, for business that should be sailing through the process. After all, as the existing lender you should know everything you ever wanted to know about that customer by this point. Lenders, help out your existing borrowers by providing early access to PTs and help out yourselves by tailoring the process to the nature of this business.

And, while we’re at it, why not reward your existing borrowers? Why are your existing customers having to pay as much as new customers? PT rates could be 50/100 basis points less than you are offering for new business right now, and it would still be business that requires less resource/processing/servicing, less procuration fee for most lenders, and would be just as profitable.

Plus, it would mean less of a payment shock, less money each month to pay – during a cost of living crisis – and you would be giving households a much better chance of dealing with all manner of issues, not least the increase in energy bills. This would be a win-win all round, and the positive PR that could be generated would no doubt be worth its weight in gold as well.

These are just some options available to lenders which would put existing customers at the heart of their business, help with their service struggles, allow advisers to provide some positive outcomes for clients, and do much to dampen the constant price hurdling we are seeing. Given the environment we are currently in, wouldn’t that be a series of positives to deliver?