We have seen an increased focus on standard variable rate (SVR) mortgages in recent months, with the FCA currently planning a consultation on affordability rules that are intended to enable so-called “mortgage prisoners” on SVRs to access lower cost deals.
Of course, it isn’t always the case that people on SVRs are “trapped” and unable to move onto lower rate deals. Almost 140,000 mortgage customers in the UK are on these rates and, in the majority of cases, they can choose a new product from their existing lender without needing to go through rigorous checks. While these customers might not be able to access to absolute best rate on the market if they fail to pass affordability checks, they can still switch to a better value deal offered by their current provider.
Customers generally choose to stay on SVRs for a number of reasons:
- They do not want to commit to another deal with early repayment penalties, either because they are moving house and will take out a new mortgage in the near future or they are expecting a lump sum with which they intend to pay off all or part of the mortgage.
- They do not have long enough remaining on their mortgage term to make taking a new rate worthwhile.
- They want to be able to make unlimited overpayments without penalty.
- They are at the lower end of a "Loan to Value" pricing band and wish to pay more off their outstanding balance to access lower rates in the next band.
As you can see, it would be wrong to assume that all consumers on SVR mortgages are desperate to make a change. However, there are those who are unaware of their options. Lenders should be ensuring that their customers are making an informed choice about remaining on, or switching from, a SVR mortgage.
An effective approach to communication strategies
Many lenders will only communicate with their customers in line with regulatory requirements, notifying consumers that their rate is going to change – usually a few weeks before the SVR takes effect – with details of the rate and new payment.
There exists the opportunity to put in place a more comprehensive communication strategy that ensures consumers are aware of their options and are making an informed decision to remain on the SVR. This not only helps the home buyer but also provides confidence to the regulator that the business is working in the best interest of their borrowers.
There are four core elements to consider in creating a better communications strategy:
- Timing – communicating earlier in the process gives consumers more time to think about their options and seek advice. The regulatory requirements are focused on ensuring that the customer is aware of changes in their monthly payment, as opposed to driving action.
- Frequency – firms should ensure they provide at least two opportunities to explain options to a consumer, well before the change and just before, for example. Other forms of regular contact – for example, annual mortgage statements – can provide an additional and ongoing reminder.
- Personalisation – it is important to ensure that any options offered to a consumer are actually available to them. If you provide customers with personalised rates and lists of all available options, they will feel more valued and more confident in being able to make an informed choice.
- Channel – historically most communications regarding a mortgage have been sent in hard copy through the post. This is starting to change as consumers become more digitally active and lenders focus on modernisation. As with any communication exercise, using the customer’s channel of choice or, even better, a variety of different channels can be more effective in ensuring that consumers receive the key messages being delivered.
Getting the most out of communications
Firms should be on the lookout for similar identifiers among their customer base that could highlight communication issues. Low levels of switching or re-mortgaging could indicate a lack of consumer understanding of the options available, for example. A review of the contact made with – and subsequent behaviours of – customers who have previously reached "deal end" can also be incredibly useful. Through this, firms will be able to identify instances in which customers may not have received appropriate information in a timely manner.
A more targeted communications approach will enable any remedial activity to be focused effectively. The issue of “mortgage prisons” can only be eliminated if firms are able to effectively identify these potential prisoners and give them the information they need to escape.
Freeing the mortgage prisoner
When presented in a factual and informative way across multiple channels, regular communications form an important part of servicing the consumer’s needs and making sure that they are aware of their options. And that’s not even to mention the fact that it fulfils regulatory obligations.
Communicating mortgage options should not simply be a tick-box exercise to meet these obligations, however. They can, and should, be enhanced through a strategy such as that outlined above. Communications should be much more than simple notifications of upcoming payment change.
With the increased concern for and understanding of “mortgage prisoners” in the media, it is more important than ever to focus on creating the right customer outcome. The key to this will be clear, concise and personalised communications.