Homeowners could be given the option of switching their mortgages within a week under new plans being considered by the government.
Under the proposals switching providers could be made quicker and easier across a range of sectors, including energy providers, mobile phones, broadband and mortgages.
The government is looking to widen rules which already make it is possible to switch current accounts with banks and mobile phone contracts within a week. Changing mortgage providers can currently take up to three months.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said that while in theory seven-day switching sounded attractive, the reality could be very different and repayment charges could increase.
He said: “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 AVMs (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.”
Another criticism is that the process of changing mortgage provider is not as simple as switching bank accounts due to strict affordability and credit checks.
Paul Smee, CML director general, said: “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 seven-day target is realistic, given tasks that lenders need to complete to fulfil risk and regulatory requirements, depends on when the clock starts ticking.”
Business secretary Sajid Javid said: “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.”
A government consultation will ask consumers and the relevant industries for evidence on how the proposals could be implemented. The new rules could be in place as soon as next year.
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