Are concerns over falling house prices pushing homeowners to product transfers?

Amidst the sharpest annual decline in UK house prices in over a decade, people are responding to the uncertain market today. With a 2.6% drop in average prices compared to the previous year, concerns over property devaluation have prompted homeowners to consider product transfers and alternative mortgage options. This challenge will be a major risk for the Sunak government in its effort to get re-elected. Rising rates, driven by the Bank of England's interest rate hikes to curb inflation, have added to the apprehension, with the average two-year fixed residential mortgage rate now at 6.54%. The trend towards product transfers reflects a proactive approach by homeowners to secure favourable rates and terms in the face of market volatility. Amidst these challenges, the market is witnessing a growing interest in shorter-term mortgage fixes and penalty-free trackers as potential solutions to weather the turbulence.

A notable shift in the supply and demand balance is also clearly visible.

The conversations I am having about product transfers at the moment are more about them being the overall best value option for the client. Lenders are working hard to keep the customers they have, so we are seeing very competitive rates for existing customers as well as seeing more and more flexibility added to their PT propositions; such as being able to amend the term or take additional borrowing at the same time. This all means that the right advice for more and more clients, regardless of conversations around affordability and property value, is that a PT is simply the best deal for them at that time.

At JB Mortgages we are very proactive in contacting our clients 6 months before any fixed-rate mortgage ends, this has been very beneficial for clients over the last couple of years as rates have been increasing. We have found that many clients would have been happy to apply for a remortgage with a new lender. However having compared the rates for a product transfer against a remortgage, it is very common that product transfer rates have turned out to be cheaper. Perhaps client retention is high on mortgage lenders' agenda and they are prioritising keeping their existing clients. Most lenders use indexed valuations to calculate loan-to-value for product transfers, these indexes can sometimes give more generous figures than a full valuation might give on a remortgage and this in turn also makes the product transfer interest rates available more attractive.

If you look at the stats there just isn't a wholesale plummeting of house prices even if it does make good clickbait so it's not really coming up as an issue. The end of a deal isn't just an opportunity to pick rates but check that things like the mortgage term are still appropriate which often means an income assessment and often remortgaging is still the best option. My advice to advisors is that if you just are an order taker, don't be surprised if your clients just ask for the easiest option. Our job is to advise, so advise.

Falling house prices are definitely increasing stress for those looking to remortgage or arrange a rate switch. I recently had two separate examples, mainly due to so called desk top valuations i.e. when no physical appointment is carried out. In the first instance the desktop valuation on a buy to let valued the clients flat at £460K. He purchased it in in 2014 for £457,500. It was in a popular part of London and his own lender had given a valuation of £540K. The new valuation was £80K less and assumed that between 2014 and now house prices had increased 0.5% in that area. Another client who was looking to change rate had his house valued at £278K by his lenders automated system, meaning he was eligible for less competitive, higher LTV rates. On approaching another lender we achieved a valuation of in excess of £300K meaning an improved rate. Its important that clients are realistic about their property price but aware of their lenders estimate of value.