Despite the availability of cheaper mortgage option in the market, many borrowers are staying with their lenders due to barriers such as exit fees and perceived difficulty in the switching process according to a new report.
Datamonitor has found the despite efforts from regulators to make switching easier, many customers stay with their bank despite wanting to change provider. In its 2009 survey, Datamonitor found 29% of respondents said they kept their transaction account provider for reasons other than satisfaction.
In 2008, the government mandated a listing and switching service for banks, whereby a consumer can request a comprehensive list of direct debits and credits over the last 13 months, in order to facilitate switching. The banking industry agreed to implement this service by November 2008, but according to Datamonitor research, banks still in some cases are unable or unwilling to provide this service.
"Perhaps unsurprisingly, banks have been more diligent in instituting programs to assist new customers switching in, as opposed to measures to assist current customers switching out," said Petter Ingemarsson, senior analyst at Datamonitor.
"Barriers to exit in financial services currently have a higher impact on customer retention than factors such as satisfaction. For transaction accounts the effort involved acts as a deterrent to switching, while for mortgages exit fees serve to lock customers' in" he said.
Exit fees are commonly applicable for customers refinancing within five years.
The government is in the process of introducing legislation to limit exit fees. "As always, mortgage customers need to closely examine the fine print of contracts and to make a trade-off between features in a way that suits their particular circumstances" said Ingemarsson.
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