Higher swap rates, caused by uncertainty about when inflation will fall and what level the base rate will reach, has led to increases in mortgage interest rates. Meanwhile, the cost of living crisis – from rising food bills to energy costs – continues to create financial pain for consumers.
For those coming to the end of their mortgage term, finding a new deal remains a must if they are to avoid falling onto their lender’s standard variable rates (SVR), which could increase their mortgage repayments by hundreds of pounds a month.
In a market of higher rates, borrowers will almost certainly be looking for the best and most cost-effective deal on the market, but now more than ever they must also seriously consider the question of whether to remortgage or product transfer.
An opportunity for brokers
More than £132bn worth of residential mortgages are set to mature in the latter half of 2023 (July-Dec), with a further £19.6bn worth of buy-to-let mortgages also reaching the end of their term. This figure looks set to increase again to £216.7bn of residential and £35.7bn of buy-to-let deals maturing in 2024, signalling the highest levels of maturities in the past five years.
That provides a huge opportunity for brokers to step in and support clients who need to find a new deal, particularly given the market is now far more complex as a result of high inflation and rising mortgage rates.
With remortgaging activity taking precedence in the market, it’s essential that brokers are working to maintain existing client relationships. Brokers will need to nurture their back book, getting up to speed on their clients’ circumstances and providing tailored advice to help them choose the right product.
If brokers can support their clients during these challenging times, they will have the best opportunity of setting up long-term relationships that will pay dividends in the future.
Remo or PT: the benefits
The first thing brokers will do is research the market to determine whether a remortgage or product transfer is the best option for a client. Both routes have their benefits.
A traditional remortgage offers clients access to a far wider range of products than those offered by a single lender, giving brokers more choice to put forward to their clients. That could, potentially, also open up access to lenders offering a lower rate than the existing provider.
However, in a market where the financial lives of borrowers could have changed significantly since they first took out their mortgage, a product transfer could be a more suitable choice. As is often the case for those who choose to opt for a product transfer, there is no affordability check required – the lender will continue the loan on the same terms that the client’s original deal was secured on.
Product transfers can also speed up the refinancing process, offering a quicker route to remortgaging, and can even help save on additional mortgage costs such as valuation or legal fees.
Making the right decision, however, ultimately depends on the client’s circumstances. That’s why advice is so critical. There is no one-size-fits-all solution for borrowers looking to refinance, so understanding their personal circumstances, and how their situation may have changed since they last took out a mortgage, will be vital to prompting the choice between a typical remortgage or a product transfer.
