The FCA is considering interventions to encourage borrowers to switch to cheaper mortgage deals.

In a paper today, the regulator says it may require lenders to tell borrowers how much money they would save by switching to another internal deal, among a number of other policies it is considering.

This comes after the Mortgage Market Study identified that up to 800,000 borrowers are missing out on an average of £1,000 a year by not changing deals.

A super-complaint by Citizens Advice to the Competition and Markets Authority also identified this “loyalty penalty” in a number of markets including mortgages, cash savings and home insurance.

In new research published today by the regulator, it found that borrowers on reversion rates could save on average £2,620 a year by switching to a new lender or £2,324 by switching to a new deal with their existing lender.

The watchdog found that borrowers who stick with the same lender year in year out are less likely to use a broker than those who regularly switch to more competitive deals.

Two in five non-switchers used a broker when taking out their mortgage, the FCA found. 

Those who did not use a broker feel uncomfortable with a perceived conflict of interest with the intermediary working on commission, according to the regulator 

Those who did use a broker felt doing so was beneficial as it reduced the length of time spent researching mortgage deals, as well as the cognitive load used in exploring those deals.

In depth interviews revealed that many non-switchers felt the commission a broker receives would compromise the financial advice given.

They reported that the personal financial motives of brokers could be detrimental to them securing the most favourable deal.

The average income of borrowers who do not switch is around £46,600 per year, while for those who switch internally this is £50,900 and for those who switch externally it is £58,700.

Borrowers who do not switch were more likely to be older than those switch.

Their average age was 36 years old and 23 per cent are aged 55-64 compared to 12 per cent of mortgage holders in general.

Previous research by the FCA found that over 30 per cent of UK current account customers have a mortgage with the same provider.

The study published today found that consumers especially those with lower incomes, worse credit histories and lower levels of education are much less likely to consider mortgages from “unfamiliar” lenders than from their current account provider.

The FCA plans to produce a consultation paper on measures to improve switching in Q2 and publish final rules on new policies by the end of the year.