Homeowners are increasingly choosing to stay with their current lender rather than remortgage with a new one when their agreement ends.
About half of borrowers stay with their current lender when their deal ends, according to data published exclusively for This is Money by broker L&C Mortgages.
That’s a big increase compared to the first half of last year, before mortgage rates began to skyrocket.
Back then, about a quarter of borrowers stayed with their current lender, and the rest remortgaged with a different lender.
Staying put: An increasing number of mortgage holders have chosen to stay with their current lender through a product transfer rather than remortgaging to a new lender.
During the second half of this year, around 800,000 borrowers will reach the end of a mortgage deal, according to banking trade body UK Finance. Next year there will be another 1.6 million who will need to remortgage.
According to L&C, most customers in this position would normally switch to another lender to get the cheapest rate available to them.
However, with average mortgage rates currently at 5.67 per cent, according to Rightmove, aAffordability concerns may be preventing some borrowers from remortgaging with a different lender.
– Are you thinking about remortgaging? Our guide to finding the best deal and switching.
Fortunately, any eligible customer coming to the end of a fixed rate mortgage should be offered what their current lender knows as a “product transfer”.
This gives them the option to switch to a new agreement with their current lender rather than automatically moving to their lender’s more expensive standard variable rate (SVR).
The benefit of product transfers is that borrowers don’t have to go through the same checks and balances as they would if they switched to a new lender, although it could also prevent them from getting the best possible deal.
Product transfers tend to require less paperwork, no new affordability assessment, and no property revaluation.
Typically, little to no additional product fees and no attorney costs are required.
– See our guide: What’s next for mortgage rates here.
Higher costs: Average mortgage rates are now 5.67 percent, meaning concerns about affordability may prevent some borrowers from remortgaging with a different lender.
To be eligible for a product transfer, customers must be current on their monthly payments, near the end of their fixed rate term, and not looking to borrow more.
Borrowers must also have a minimum remaining mortgage term of two years and an outstanding loan of at least £10,000.
David Hollingworth, Associate Director at L&C, says: ‘Borrowers face a squeeze on affordability due to rising cost of living and higher interest rates.
‘If there are problems meeting other lenders’ criteria, then product transfer could offer an alternative route to ensure a high interest rate is maintained.
“Shifting the mortgage to comparable terms avoids the need for an affordability test when the borrower has made their payments.”
In reality, the number of people who choose to stay with their current lender rather than re-mortgage with a new one is likely to be more than 50 percent.
This is because some borrowers obtain their mortgage directly from a lender rather than through a mortgage broker and are therefore less likely to shop around.
Hollingworth recommends that anyone nearing the end of their deal seek the advice of a broker to get the best general idea of what to do.
He adds: ‘Some people don’t realize that their adviser will be able to look at the existing lender’s options, as well as looking at the rest of the market to see if there might be a better offer.
“That will help borrowers to be sure they are getting the best deal for their circumstances and the counselor may even be able to close the deal for them, whether it’s with a new or existing lender.”
Why are product transfers so popular?
Switching to the lender offering the cheapest deal at any given time is often the way to ensure the lowest rates, but only if the customer is eligible.
However, L&C’s Hollingworth believes many people now see the cheapest option as staying put.
“Product transfers will undoubtedly become more common, and lenders will be especially focused on their retention approach, often setting very competitive prices for their existing borrowers,” Hollingworth says.
“As a result, it could be the best rate option for borrowers, regardless of any criteria concerns.”
Chris Sykes, technical director of mortgage broker Private Finance, says there isn’t much point in re-mortgaging with a new lender unless the rate is significantly cheaper.
Says Sykes: ‘With about six months to go until a mortgage deal is finalized, we look at the client’s options and whether it’s best to transfer the product or re-mortgage it.
‘A remortgage has to be better enough to justify the extra work involved compared to a product transfer. A remortgage also has to cover additional costs, including higher fees, possible legal fees, administrative costs of exiting the mortgage, possible valuation costs, etc.
‘Switching to a new lender also takes time, so that’s also a factor to consider.
“At many times this year, the major lenders have been pretty close on their rates, so if, for example, you can get a product transfer at 5.5 percent and another lender is slightly better at 5.45 percent percent, that 0.05 basis point difference may not be enough savings to justify the work of a full remortgage.
Weigh the costs: There’s little point in remortgaging to a new lender unless the rate is significantly cheaper
Mark Harris, CEO of mortgage brokerage SPF Private Clients, says: ‘There has been an increase in the number of borrowers choosing product transfers this year, not just with us but across the industry.
‘There are probably several reasons. Lenders may offer enhanced product transfer deals, meaning it’s not worth shopping around and going to the trouble of remortgaging to another lender.
‘Alternatively, borrowers may feel they know what they want and are confident in transacting themselves by instructing their current lender to go ahead with the product transfer, rather than seeking advice from a broker.
“Speed can also be a factor: generally speaking, commodity transfers can be arranged relatively quickly and easily, especially if it’s a pound-for-pound remortgage with no additional borrowing.”
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David Hollingworth is This is Money’s mortgage expert and broker at L&C Mortgages.
He’s ready to answer your home loan questions, whether you’re buying your first home, trying to remortgage amid rate chaos, or looking to plan ahead.
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