Mortgage switching research

• Context
• The study
• Key findings
• Points to consider

Context

One of the Financial Conduct Authority’s (FCA) central regulatory objectives is to improve how markets operate. Mortgages have come under increasing scrutiny for the ‘loyalty penalty’, where suppliers charge existing customers higher prices than new customers, based on the expectation that they are unlikely to switch to get a better deal. A previous study, the FCA’s Mortgage Market Study, found that, in terms of switching, the mortgage market works well for the majority of homeowners, but the FCA estimates that around 800,000 consumers (around 10% of mortgage holders) do not switch when they would financially benefit from doing so. This study was undertaken to look at the profile of non-switchers, to better understand the barriers to switching and to explore interventions that could encourage switching behaviour.

The study

The study comprised the following:

• 60 depth interviews, 40 amongst people that had not switched their mortgage, and 20 amongst people that had switched their mortgage (to act as a control group), conducted between the 12th August and 25th September 2019
• A survey amongst 589 non-switchers, resulting in a margin of error of +/- 4.04%. Of the 589 non-switchers, 86 surveys were completed using Computer Assisted Telephone Interviewing, and 503 were completed online. Quantitative surveys were completed between 2nd October and 12th November 2019.

Because behavioural research has shown that humans can be poor at rationalising their decisions, particularly in relation to financial services, the research included two techniques which aimed to go beyond reported attitudes or behaviour to understand latent attitudes and observable behaviour. These techniques were a Key Drivers Analysis (KDA) used in the survey stage, and a Decision Making Exercise used in both the interviews and surveys.The research was commissioned by the FCA and conducted by Savanta ComRes, an independent research consultancy.

Key findings

The findings are in three key areas:

• Profile of non-switchers: Non-switchers tend to be older than mortgage holders in general. Male non-switchers are more likely to be older and comparatively wealthy compared to female non-switchers – an important difference as older men and younger women are often at different life stages, impacting the way they think and behave, and consequently, the barriers they face.
• Barriers to switching: Non-switchers are typically content with their mortgage deal, and many are loyal to their current lender; they typically overestimate the difficulties of switching, and underestimate the benefits of doing so. An intervention that is hard to do - places a perceived cognitive load onto non-switchers - is likely to be offputting.
• What non-switchers would want from an intervention: They want to be contacted and given information, but not mandated to switch; contacted by their current lender, and in many cases, to switch to their current lender; and provided a clear financial incentive to switch.

The authors also note that any intervention would have to balance non-switchers’ preference for a reduction in cognitive load and addressing their concerns about the switching process, and that as many non-switchers are already aware that they can benefit financially from switching, other perceived barriers will need to be addressed.

Points to consider

• Methodological strengths/weaknesses: There are no details about whether the sample of non-switchers was representative of all non-switchers in the mortgage market. However the authors state that the research was as inclusive as possible:
  • The mixed methods of face-to-face and telephone interviews during the qualitative phase ensured that the voice of those unlikely to take part in telephone interviews, or with vulnerable characteristics were included in the research.
  • Combining a CATI and online approach ensured that even those without broadband were included
• Generalisability/ transferability: The research is specific to the mortgage market in the UK. Some of the findings around barriers to switching may be transferrable to other markets where there is switching inertia such as broadband or energy.
  • The research is primarily applicable to regulators and mortgage product suppliers
• Relevance: Relevant and topical given the proportion of people who could save money by switching