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Banks
face falling customer loyalty
The average
life of a mortgage is now down to around five years and 70% of customers
are willing to remortgage to a different provider, according to
a new report by KPMG.
The professional services firm has found that customer loyalty is
falling away and that the average lifespan of a mortgage is falling
with it. As consumer concerns over the economy, housing market and
levels of personal debt increase, KPMG has warned that retail banks
will have to contend with rising levels of customer churn which
will make it difficult to maintain the profit growth of past years.
Their cost-income ratios may rise, and they will also need to guard
against rising provisions for bad debts.
KPMG’s research among lenders, credit card providers and retailers
found that the average life of a mortgage has fallen from around
seven years to nearer five, while the average life of a credit card
is between two and five years. As consumers shop around more, chasing
the best rates, banks will incur higher costs: lenders estimate
that it is between five and twelve times more expensive to take
on a new customer than it is to service an existing one.
"A new generation of financially astute young buyers regard
a mortgage as a tactical investment, not a life long bond. Just
as in the cut-throat credit card market, lenders need to take full
account of this in the pricing, marketing and servicing of their
products if they are to stay ahead," Simon Walker, partner
in KPMG's Financial Services practice said.
"Brokers are becoming increasingly active in their telephone
canvassing of consumers to interest them in remortgaging - banks
need to consider becoming more active.”
Separate KPMG research found that 87% of consumers do not expect
to be better off in 2003 and over half are concerned about their
level of debt. This is likely to lead to increased remortgaging,
rate chasing and retrenching, especially if house prices fall and
confidence worsens. Banks will have to work hard to take on more
business than they lose, KPMG said, and they will also need to be
careful about their bad debt provisions in the retail sector.
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