Yesterday, Barclays nearly doubled its rate switch window for existing customers from 90 days to 150 days.
Brokers said that rate switch windows range from three to four months but said that over the past year more lenders were extending the window to up to six months.
Most brokers said that this was a good move as it would give customers more options and increased flexibility.
They also noted that it would benefit lenders as it would improve client retention, as rate switch windows would match typical remortgage window of six months.
They also said that with October and December expected to see £100bn of remortgages then this could alleviate potential application pipelines.
“Helpful in the current market”
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said that extending the rate switch window was “very helpful in the current market” as it permits clients to agree and lock-in a fixed rate, avoiding future rate rises and “giving them peace of mind”.
He added: “With people concerned about rising rates, many weren’t willing to wait until just three months away from the end of their deal to act, many wanted to act sooner and their only option at that point was a full remortgage to a new lender.
“So, by extending their rate switch window, lenders have been able to give people the choice of staying put with a new deal arranged, rather than them having to move away.”
He said that it would be “useful” if lenders had a six-month window, but it was the “diversity in the market that allows it to flourish”.
“I wouldn’t want to see lenders forced to change systems to comply with a forced six-month rule if it meant that another innovation they wanted to bring to market was delayed or shelved,” Taylor-Barr noted.
Engage with a broker early
Jamie Lennox, director at Dimora Mortgages, said that it was a “great addition” to have more lenders offering existing customers a new rate five or six months earlier, and that “more lenders will need to follow suit if they wish to retain their client bank to avoid clients remortgaging to a new provider sooner”.
He continued: “If more lenders follow suit, it would ease a lot of pressure on lenders who are experiencing poor service levels due to not being able to cope with the demand of new applications coming in.
“Our advice to all clients is to act in a timely manner, don’t bury your head in the sand about sorting your mortgage and look at engaging with a broker six months before your current deal ends.”
Consumers could be ‘shooting themselves in the foot’ with product switch
Some brokers said that consumers should always seek financial advice before accepting a product switch.
Lewis Shaw, founder and mortgage expert at Shaw Financial Services, said: “Consumers should be aware they may be shooting themselves in the foot if they decide to do this independently of a broker without knowing if there are better deals elsewhere.
“Mortgage lenders are aware that many customers develop apathy over time. How many people ever change their current account or home insurance? For that very reason, you should always contact your broker.”
He said that he had had several clients on the phone wanting to move home, raise capital, consolidate debt who were unaware what they had agreed to with the product switch and that they could face a large redemption penalty as a result.
“In times of economic turmoil such as this, don’t assume anything. I say this, with a mountain of experience, for two reasons; if you act in haste, you’ll repent at leisure because a little knowledge is dangerous,” Shaw noted.
Rate switch window “a double-edged sword”
Mike Staton, director at Staton Mortgages, said that extending the rate switch window is a bit of “double-edged sword”, so getting independent mortgage advice was key.
He added that lenders were using the increase in rates to “coerce customers to sign up on longer terms”.
Staton said that he was seeing cheaper five-year fixed rates than two-year, which he said was due to “lenders wanting to get clients to sign up on longer terms”.
He noted that this could see customers paying more in the long run as interest rates drop over the next two years, which current swap rates indicated. This then could leave customers with options to pay higher rates or increased early repayment penalties, should interest rates drop.
Staton added: “Quite simply, get good advice and get a mortgage that suits your standard of living, not a mortgage that is based on an assumption bred by fear and panic. Also ensure you book in to see a mortgage advisor, as several high-street lenders offer brokers cheaper retention deals than they do to their own clients.”
