Unlike a remortgage, a full property valuation is not always done during a product transfer meaning a down valuation could be avoided amid a correction in house prices.
Clive Read, owner of Goldmanread, said falling house prices were “increasing stress” for people looking to remortgage or switch rates.
He cited two recent examples where a desktop valuation was conducted.
Read said: “In the first instance, the desktop valuation on a buy-to-let valued the client’s flat at £460,000. He purchased it in in 2014 for £457,500. It was in a popular part of London and his own lender had given a valuation of £540,000.
“The new valuation was £80,000 less and assumed that between 2014 and now, house prices had increased 0.5 per cent in that area.”
Read added: “Another client who was looking to change rate had his house was valued at £278,000 by his lender’s automated system, meaning he was eligible for a less competitive, higher loan to value (LTV) rate. On approaching another lender, we achieved a valuation of in excess of £300,000 meaning an improved rate.
“It’s important that clients are realistic about their property price but aware of their lender’s estimate of the value.”
Kundan Bhaduri, property developer and portfolio landlord at The Kushman Group, said in the midst of the “sharpest annual decline in UK house prices in over a decade” people were responding to the uncertain market.
He added: “Concerns over property devaluation have prompted homeowners to consider product transfers and alternative mortgage options.
“Rising rates, driven by the Bank of England’s interest rate hikes to curb inflation, have added to the apprehension, with the average two-year fixed residential mortgage rate now at 6.54 per cent. The trend towards product transfers reflects a proactive approach by homeowners to secure favourable rates and terms in the face of market volatility.
“Amidst these challenges, the market is witnessing a growing interest in shorter-term mortgage fixes and penalty-free trackers as potential solutions to weather the turbulence.”
Not a major draw
Stephen Perkins, managing director at Yellow Brick Mortgages, said there were many reasons why a product transfer would be more suitable for a client, adding that it was often the cheaper deal and bypassed affordability check.
He also said the ease of no valuation meant no legal paperwork or delays.
“So far reduced property valuations haven’t been a major factor, as product transfers are usually also based on house price index data, so would be equally affected in most cases.
“Of course, some valuers will be more cynical than others when valuing homes in the dipping market, but most clients will go for the cheapest overall deal they meet the criteria for, and only if there was a problem with the valuation, would that be a factor,” Perkins added.
James Bull, mortgage broker at JB Mortgages, said his firm was “proactive” in contacting clients six months before their rate expired which had been beneficial for them.
He said many of his clients would have been “happy to reapply for a remortgage with a new lender” but when the rates were compared, the product transfer tended to be cheaper. He suggested this might be due to lenders focusing on client retention.
Bull added: “Most lenders use indexed valuations to calculate LTV for product transfers, these indexes can sometimes give more generous figures than a full valuation might give on a remortgage and this in turn also makes the product transfer interest rates available more attractive.”
Usually the better deal
Reiterating that the cheaper rate was the main attraction of a product transfer, Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, said the conversations he had with clients were mostly about which deals provided the best value.
He also said lenders were “working hard to keep the customers they have”, making product transfer rates “very competitive” and with more flexibility such as being able to amend the term and borrow more.
Taylor-Barr said: “This all means that the right advice for more and more clients, regardless of conversations around affordability and property value, is that a product transfer is simply the best deal for them at that time.”
Rhys Schofield, brand director at Peak Mortgages and Protection, said the figures did not show a “wholesale plummeting of house prices” even if this did make “good clickbait”.
He said it was not an issue he had come across with clients.
Schofield added: “The end of a deal isn’t just an opportunity to pick rates but check that things like the mortgage term are still appropriate which often means an income assessment and often remortgaging is still the best option. My advice to advisers is that if you just are an order taker, don’t be surprised if your clients just ask for the easiest option.
“Our job is to advise, so advise.”
