A recent poll of Mortgage Solutions readers showed that 66% expect a remortgaging surge in the next few months when thousands of mortgage deals come to an end.

There are good reasons for such optimism, but brokers should be aware of the specific types of opportunity available within their client database, depending on the products available and the customer’s requirements.

This article will help brokers analyse and segment their client database and then target the right proposition at the right client.

The UK ‘remo’ market developed during the 1990s and early 2000s, when borrowers expected their broker to obtain another good fixed or discounted rate whenever an initial mortgage deal ended.

However, the credit crunch has significantly reduced this practice. According to figures from the CML, remortgaging accounted for just 25% of loans in August, the lowest level in more than ten years.

Sponsored

Are your clients ready for the first Making Tax Digital reporting deadline?

Sponsored by BM Solutions

Falling UK property prices reducing clients’ equity, coupled with banks tightening their lending criteria, have meant that more and more people have had no option other than to revert to their lender’s standard variable rate (SVR), with brokers unable to find a better deal for them.

Recently, lenders do seem to have finally regained the confidence to resume remortgage lending at smaller margins and higher loan-to-values, although not both at the same time. But what does such a development mean to the different segments of your client database?

Clients on low SVRs, who fit lending criteria

Finally, even your clients on SVRs below 4.00% (for example, Halifax at 3.50%) can make big savings by switching to Natwest’s two-year base rate tracker mortgage at just 1.99% (Bank rate + 1.49%).

However, the product has arrangement fees of £999 and is only available up to 60% LTV.

Clients who want to fix and fit lending criteria

There is general agreement that rates are bound to increase from their current historical low base, but debate continues about the timing. When rates do rise, they could significantly increase the monthly payments for all those on variable rates.

How important is peace of mind to your clients, especially given the likelihood of unemployment or part-time working in the next few years?

Even if they are paying a competitive SVR, they could limit their exposure to interest rate rises whilst reducing payments at the same time. A two-year fixed rate mortgage is now available from Natwest at a rate of just 2.75% until 30 November 2012, with an arrangement fee of £699. This product is also only available up to 60% LTV.

For the foreseeable future, deals such as this will continue to be available only to clients with plenty of equity. According to the CML, almost half a million 90% LTV mortgages have been granted since January 2007.

As the Halifax Property Price Index suggests, many of these borrowers will still have less than 10% equity in their home and other borrowers who had more than 10% equity when they arranged their mortgage will have been dragged into this trap. Equity erosion may take the best deals out of your clients’ reach if you do not act quickly.

Interest-only, self-cert and credit impaired borrowers are facing problems too, with lenders no longer offering these products, rendering such borrowers unable to remortgage from SVR onto a fixed rate deal. But there is another way of helping to protect your client’s mortgage against future interest rate rises.

Clients who want to fix and do not fit criteria

If your clients want to fix or cap their mortgage but do not fit today’s lending criteria, it is possible to arrange insurance.

MarketGuard offers a two-year policy called RateGuard aimed at the whole market, with no credit or wealth checks, unlike other derivative-based products, which offer cover for longer periods, but are aimed at wealthier borrowers who have to meet certain income criteria.

The price depends on the size of your client’s outstanding mortgage and the likelihood of interest rates rising. However, once your client has bought the insurance, the price remains fixed for the term of the policy.

RateGuard premiums start at £30 a month for a £100,000 mortgage. If rates do rise, homeowners pay the first full percentage point increase, but any rate rise beyond that is covered by their insurance policy.

RateGuard is currently available via a limited number of distribution networks, including Countrywide, as MarketGuard does not deal directly with individual brokers (nor does it deal directly with the public).

If you are interested in recommending the product, you will need to ask your network or club to approach MarketGuard on your behalf.