Product transfers: why are brokers key?
April 2024
Despite the recent economic backdrop marked by higher inflation and interest rates, client interest in the UK mortgage market has continued to remain stable. With conditions now more favourable, and inflation falling towards the Bank of England’s target of 2%, many homeowners who need to switch mortgage will be evaluating their options, whether it be through a product transfer or a traditional remortgage.
With many facing the prospect of higher mortgage rates and, in some cases, worsened affordability since they last took out a mortgage product of any kind, making the right choice between a product transfer or a remortgage could be a far more difficult decision. The vast majority need the support and advice from brokers.
Opportunities for brokers
In the first half of 2024 (Jan-Jun), £107.29 billion worth of residential mortgages are set to mature, with a further £18.7 billion worth of Buy to Let (BTL) mortgages reaching the end of their term1 . Increasing demand for rental properties2, coupled with improved economic stability have instilled a sense of optimism among BTL landlords, but many brokers have reported that refinancing in the BTL market remains challenging due to higher interest rates, unfavourable Interest Cover Ratios and uncertainty around future government regulation.3
Borrowers behind these mortgages will need options, and with many facing a very different market compared to when they last took out a mortgage, the need for tailored advice will be more important than ever.
It is for this very reason that a broker may want to offer advice to a client to proceed with a product transfer. While economic pressures have eased somewhat, the typical five-year fixed rate product stood at an average of 5.65%4 in December 2023 compared to just 2.92% in December 20185.
On top of that, after the impact of the cost of living crisis many clients will be taking out a new mortgage product with a very different set of financial circumstances. What they could have afforded to borrow five years ago is not necessarily the same as what they would get approved for if they sought the same sort of product today.
A product transfer goes some way in solving this issue. With like-for-like product transfers, there is no need for an affordability check as the lender will simply continue the loan on the same basis as when the first mortgage was secured, making this part of the transaction a much quicker and simpler process than a traditional remortgage. At Coventry for intermediaries, this process doesn't require a client signature when submitting like-for-like product transfers on MSO, so the speed at which this can be done also favours the borrower in a market prone to frequent changes. We also aim for our product transfer rates to always match or be more favourable than the lowest equivalent new business rate.
Wider considerations
However, while product transfers are a suitable option for some clients, they may not be the best mortgage product on the market for your client. To create real value for clients, brokers will take into consideration their individual circumstances and the need for additional borrowing, which may make remortgaging a better option.
Comparing and analysing clients’ wider financial lives and circumstances, taking into consideration all factors including equity, LTVs, clients’ credit histories, their plans for their property, further costs, and eligibility for products all play a part. It might suit some clients to opt for a different lender offering different rates or overall loan value, even if affordability checks or additional legal fees come into play.
Brokers always want to provide the best possible option, especially with their personal relationships playing such a big part in client retention, so giving the positives of each approach and a clear bespoke recommendation is vital. This is particularly true as the current climate is prompting more borrowers to lock in new deals ahead of further market changes.
At Coventry for intermediaries, we offer a wide range of services tailored to client needs, including flexible lending criteria for those who are self-employed. Our extended Live Chat opening hours from 8am to 6pm Monday to Friday means we are on hand to support with product transfers for brokers with existing Coventry clients or those with new customers looking to remortgage.
1 CACI Mortgage Market Database 2024
2 NRLA: Budget 2024 fails to deal with PRS supply crisis
3 BSLS2023: Uncertainty rules in the BTL market as landlords ‘wait and see’ on property sales
