The research, conducted in conjunction with the Council of Mortgage Lenders and covering 57% of the mortgage industry, focused on the causes of churn and on how lenders are responding.
Mark Roberts, one of the authors of the report, commented: "We have seen a radical change in consumer behaviour, brought about by discounting and special deals, which was unheard of until quite recently. Mortgage churn presents an increasingly expensive challenge to lenders. While some are beginning to respond with well thought out retention strategies, most have a long way to go."
Key findings are as follows:
• While mortgage churn (excluding the effect of growth in the mortgage market) has doubled over the last seven years, two thirds of lenders are unable to quantify how much it is costing them.
• 75% of lenders say that they are focused on gaining new business and 60% are still promoting churn-creating products. An over-riding motivation to maintain or increase market share has created an environment where competition is almost exclusively price-based and churn is reducing the underlying profitability of mortgage lending.
• Most lenders, in focusing on acquisition of new customers, are not assessing those customers' propensity to churn. In fact, only 16% are able to assess the likelihood of these new customers churning - and even fewer then take this into account in accepting new business on discounted offers.
• 60% of lenders don't understand why customers leave or close their mortgage account, and almost three quarters do not know the lifetime profitability of each customer. 64% also don't know the annual profitability of each customer, or the profit lost through churn by product, channel or segment.
• There is a dilemma in that many lenders aim to treat new and existing customers equally but this is frequently set aside in order to grow the business in a price driven market. This has caused a quandary for some mutuals which particularly aspire to the principles of equality and fairness.
Tom Watson, the joint author of the report concludes: "We believe that 'the next big thing' for mortgage lenders is now about a clearer understanding of the segments within the customer base, and the development of mortgage propositions that are more precisely targeted to those segments. This approach should provide wins for both the industry, in reducing the high costs of handling churn, and for the consumer, through offers which really fit their needs and preferences. Overall, the industry is working hard on this issue, but there is a long way to go, and we can also expect further re-structuring over the next couple of years."
