According to the Association of Mortgage Intermediaries (AMI), the mortgage product transfer market is estimated to be worth around £100bn a year. With lenders working harder to retain clients, the market is also expected to grow further this year.
However, certain lenders are creating direct-to-consumer product transfer offers – with some waiving early-redemption charges (ERCs) and allowing customers to switch products online.
“With lending having been flat for much of 2017, lenders are putting importance on retaining existing clients to maintain positive net lending,” said Ray Boulger, senior technical manager at John Charcol.
However, Boulger argues that while lenders’ direct to consumer approach could theoretically be a threat, he thinks brokers will actually play a much more substantive role in the product transfer market.
Part of the issue is that the Financial Conduct Authority (FCA) has allowed lenders to do product transfers on a non-advised basis, says Boulger.
“The reality is that it’s not a level playing field,” said Boulger, “It means that providing there is no human interaction – such as contacting customers online or through an app – lenders can get through to the customer without having to give advice.
“It’s effectively a loophole where the lenders can go straight to clients on a non-advised basis.”
He continued: “Clearly from a broker’s perspective it’s a concern – allowing borrowers to switch products directly can be a problem.
“But it only really becomes a problem if they don’t allow brokers to deal with product transfers, and only waive ERCs if the consumer goes to [the lender] directly.”
Sebastian Murphy, head of mortgage finance at JLM Mortgage Services, also commented: “We’re disappointed that certain lenders have decided to go down this route and cut the intermediary out.”
“Our concerns as intermediaries is that what is going to happen is that lenders are going to a number of people who didn’t understand the limitations of what they’re getting themselves into,” Murphy added.
Despite the potentially faster, easier nature of lender product transfer offerings, brokers argue that the critical role of advice means that intermediaries will play a significantly bigger role.
Murphy continued: “At the end of the day, it’s a regulated industry, so it should be advised on under the FCA rules.”
Boulger also commented: “While it may be a cost-effective way of doing business by keeping administrative costs down, and while product transfers may sometimes be the best option for the client – it’s a problem when there’s a better deal elsewhere.”
“When you you are looking at a product transfer, you should be giving it the same consideration as you would an initial mortgage,” he added.
James Tucker, managing director of Twenty7Tec, said that although lender’s product transfer solutions will be “faster, slicker, smarter”, advisers have a real opportunity to gain product transfer market share, but only if they are proactive about their strategy.
“Mortgage advisers will only win a bigger share of the product transfer market from lenders if they become more proactive and cognizant of how and when to market to their clients,” said Tucker.
He continued: “Those brokers who are reactive order takers, rather than true advisers, will simply not be quick enough to prevent clients going direct to lenders for a product transfer.”
Tucker also thinks that the tech solutions for product transfer can create benefits for all sides.
“The investment going into technology from Lenders to create better direct to consumer solutions for product transfers could also be used to support a slicker intermediary journey for sourcing and submission for their client,” said Tucker.
“Advisers have a real opportunity to use new lender and intermediary tech to tap into a market that largely evades them at present,” he added.
Indeed, Boulger says that the product transfer market has already seen a lot of change, with lenders engaging increasingly with brokers not only with retention fees, but also allowing brokers to process the transfer.
“Until recently, relatively few lenders would allow brokers to deal with product transfers,” said Boulger.
“But 2017 saw a bit of a transformation. If you look at the market today compared with a year ago, you see a lot more lenders dealing with brokers on product transfers.”
Currently, Lloyds, Santander and Nationwide offer waivers on ERCs for product switches up to three months before the current deal expires, with all also offering online switches.
While HSBC does not waive ERCs, it allows customers to arrange product switches up to 90 days before deal-end, to take effect from the end of the current rate period.
Meanwhile, Barclays does not waive ERCs for product switches, and the Bank of Ireland does so on a case by case basis.
“The scope of product increases in product transfers is significant,” added Boulger, “There is no doubt that the proportion of transfers done by brokers will be substantially larger over the next two to three years.”