Customers shopping around for cheaper mortgage deals will pose an increasing challenge to the banks during the next two years and could cost the industry an estimated £3bn, according to a report.
The study, by PA Consulting and the Council of Mortgage Lenders, the industry body, says in recent years an increase in special mortgage deals has prompted a radical change in customer behaviour. Homeowners are now more willing to shop around for a cheap mortgage deal and switch mortgage provider in a process known as "churning".
Already the mortgage market has become increasingly competitive for banks because of increased competition and lower profit margins.
Mark Roberts, who co-wrote the report, said: "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," he said.
The study found that while mortgage churn had doubled over the past seven years, two-thirds of lenders were unable to quantify how much it was costing them.
About 75 per cent of lenders said they were focused on gaining new business and 60 per cent were still promoting products that customers could switch to join a competitor.
Most lenders are focused on attracting new customers and are not assessing whether existing customers might switch to rival lenders.
About 60 per cent of lenders do not understand why customers leave or close their mortgage accounts and almost three-quarters do not know the lifetime profitability of each customer.
