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Ride on mortgage-go-round will cost lenders £3bn

Chasing new mortgage business will cost lenders £3bn over the

next two years and is one of the biggest challen-ges facing the

industry, says a report from PA Consulting Group and the Council of

Mortgage Lenders.

The report, called Stuck on the Mortgage-go-Round, says this

spiralling cost of what it describes as “churning” mortgages comes

from lenders having to find and retain new customers and develop

innovative products.

The report, based on interviews with senior personnel in banks and

building societies making up 57 per cent of the UK market, reveals

that 75 per cent of lenders are focusing on gaining new business and

60 per cent are promoting what the report says are churn-creating

products which entice people with low up-front rates.

PA Consulting says the “mortgage-go-round” caused by borrowers

becoming more aware of the benefits of remortgaging is far from a

happy state of affairs for lenders and has caused an “unstable

position across the industry”.

It argues that an overriding motivation to maintain and increase

market share has created an environment where competition is almost

exclusively price-based and churn is reducing the profitability of

mortgage lending.

CML communications manager Bernard Clarke says: “We are considering

the res-earch to help shed light on the conclusions but clearly it is

for individual lenders to develop our strategy in a competitive

marketplace.

“The obvious winners are consumers who are benefiting from strong

price competition.”

Specialist lender Future Mortgages head of communications Richard

Hurst says: “Churning sounds like a spurious description – lenders

develop new product offers to survive in a very competitive market.”

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