Story for The Times: Remortgage behaviour, more product transfers?

At the moment, the product transfer is very often the most competitive option for people and doesn't involve a whole re-underwrite. Most lenders are pricing their product transfers in line with their new business ranges, so if their new business is competitive they'll likely have a good customer retention rate. With transaction levels down, retention is key for lenders. Affordability is also a contributing factor: where previously every lender may have given a client the amount they are borrowing, now it might be that only a few competitive lenders will do it, so a product transfer is better. Whenever a client's deal is up for renewal, we undertake a full review of the market, which includes product transfer versus a remortgage elsewhere. Product transfers are obviously a low-stress option so there needs to be some quite attractive options to justify a remortgage especially when there will often be costs involved with a remortgage that are not incurred on a product transfer.

Product transfers are becoming much more popular for a variety of reasons. One of the main reasons is they have become far more competitive in pricing. Lenders are being significantly more proactive in holding onto valued clients rather than spending money on marketing trying to bring new clients in. Also, Covid has had an impact. Self-employed borrowers may have taken a hit to their income, meaning they don't meet affordability now or they have issues with their credit, meaning if they moved their mortgage they would end up paying a higher rate going to a more specialist lender. Product transfers have also increased the number of secured loans being taken as customers are keen to take advantage of the low rate offered by doing a product transfer but still then need to borrow extra funds.

With new mortgage transaction numbers down given all the market uncertainty, many lenders are more focused on retaining existing customers to maintain their mortgage back book as they know there will be less new business this year. Many borrowers also stretched themselves financially during the pandemic stamp duty holiday to move up the property ladder, and now find themselves falling foul of affordability with a new lender due to the cost of living crisis. This over-exuberance has resulted in many mortgage holders having no choice but to stay with their current lender once their deal expires.

Product transfers have been on the up for the last few years. Lenders have started to really focus in on the retention of good business, and as such often price very competitively within the remortgage market. A level of apathy from clients to the potential of moving lenders for marginal gains, added to more difficult affordability tests have driven more clients to be advised to stay with their existing lender and product transfer. There is definitely a growth in the number of clients who are finding they cannot remortgage elsewhere what they already have due to the increased costs they have incurred - be it from unsecured debts or increased dependents, and therefore have no choice but to product switch. This has also been prevalent in the buy-to-let market due to rental stress tests no longer working out.

With the property market on a knife edge and the cost of living crisis likely to make prices fall over the short term, there are more down values occurring, as lenders look to protect their loan book. This means it is more difficult to remortgage at the rate you were expecting as your loan to value might be less once the valuation comes back. In contrast, if you are switching product with the same lender they are less likely to be so stringent about the valuation, opting for the desktop valuation. This will mean you could be seen to have more equity, offering cheaper rates. Of course, some brokers are advising to opt for a tracker with no early repayment charges so clients can benefit from the fall in interest rates we are all expecting. That way, when more competitive rates come back into the market, they can fix with a more suitable offer.

No one comes to a meeting with me and says, "I want a product transfer" or "I want to remortgage". What they do say is, "my current deal is coming to an end, what do I do?". People don't care whether they have a remortgage or a product transfer, and many don't know what the differences are. Product transfers have started to take a greater share of the market because they represent great value at the moment. Though perhaps not market-leading, many lenders are offering existing customers good deals. When you explain that the deal with their current lender is only a few pounds more than the very best on the market, but you don't need to faff around with loads of documents and have conveyancing done, that extra cost is seen as worth paying. However, this is only true for straight balance swaps. If you want to amend the term, borrow more or change the names on the mortgage, many product transfer systems can't do that yet, so these cases could benefit from a remortgage to a new lender.

We don't seem to be doing a higher proportion of product transfers than normal. Whilst product transfers might seem an easy option and be absolutely right for some of our clients, I think a good broker still needs to stick to their principles, do a thorough job and, if a better option is out there with another lender, make the process easy for their client to move over. We could be talking about potentially saving people thousands of pounds in interest so shouldn't be cutting corners.

If you had an ultra-low rate two years ago on your 95% mortgage and affordability only just passed then, you probably won't be able to remortgage straightaway. A product transfer gives you a good option to stay with the lender and refix without any extra checks. For some borrowers, this is their only choice. Equally, some borrowers just can't be bothered with a new application. Either way, brokers need to present people with their best options and let them decide. If a product transfer is best, why not. For highly mortgaged borrowers, of course, a rate drop will help them move if needed.

We are seeing a significant increase in remortgage borrowers opting for product transfers, with the key driver being the competitive rates lenders are offering existing borrowers. We've also seen clear examples of lenders offering less competitive deals direct than the same borrower could obtain via a broker. Remortgage borrowers should always speak to an independent mortgage broker, if only to make sure any deal they've been offered direct by their existing lender is the best they can obtain.

Product transfers are more popular for two reasons. Firstly, the rates are very competitive as lenders are trying to keep as much business as possible. Secondly, it is a lot quicker and easier to complete a product transfer. If there is only a marginal saving moving lenders, a lot of borrowers prefer the ease of completing a product transfer instead.

With the volume of new mortgage transactions unquestionably less than in recent boom times, the previously neglected or taken-for-granted area of customer retention has clearly become a higher priority for most lenders. Some of the UK's largest lenders are now offering bespoke and often very attractive pricing for existing borrowers and so, along with the relative ease and speed of the process, product transfers are undoubtedly on the rise and often will represent the best advice. However, with something of a rate war ongoing currently, comparing what your current lender may offer with what the overall market has to offer remains a vital part of the process. Advice and discussion around your personal circumstances, outlook and the length of any initial deal should also always be sought and fully considered to ensure decisions made now do not seriously impact your options in the future.

All being well, product transfers take hours to complete while remortgages, with lender backlogs, shortage of valuer slots and solicitors taking much longer to process the legals, they could take 8 weeks plus. During this time anything could happen to the fixed rate market, and added to this the risk of reprocessing a client's remortgage to another lender, due to a poor underwriting decision or a down valuation, is quite high. When you explain this to borrowers, they often opt for a product transfer, potentially at a marginally higher rate, just for peace of mind.

It is positively raining product transfers at the moment. The reason? Lenders see this as easy business to keep, the rates are all competitive and with the ability to cancel and switch to new rates if they become lower, they have been the perfect solution for many people.

Whether to opt for a product transfer or remortgage to a new lender can often be a marginal decision and really depends on the individual borrower's wants and needs. We always need to explore other lenders as well and make people aware of what the best financial option is. Sometimes the product transfer is the lowest cost, but sometimes it’s marginal. And sometimes the client doesn’t find any savings from going to a new lender when valuations and legal costs get added in. We also find it’s criteria-driven, and borrowers often make their decision based on that. A whole host of reasons are contributing to each person’s decision and there doesn’t seem to be a general rule.