More specialist lenders considering PTs but brokers find process ‘frustrating’ – analysis

Aaron Forster, director at Create Finance, said specialist lender PT was “definitely an area which needs improvement”.

“Very few specialist lenders offer PTs currently. Most still treat it as a brand-new application which can be declined.

“This can leave customers with an increased mortgage payment which some will find unaffordable and because specialist lenders change their funding lines regularly it makes it difficult to offer this proposition,” he added.

Luke Thompson, director at PAB Wealth Management, added: “The PT process with specialist lenders can be very frustrating.

“Some lenders just won’t do them at all, some lenders only offer PTs to some borrowers and there seems to be no rhyme nor reason as to why they will do them for some clients and not others.”

He said the process “needs to be improved” and lenders should offer PTs to all borrowers, citing the likelihood that a borrower who uses a mortgage with a specialist lender might be a vulnerable customer.

Riz Malik, director at R3 Mortgages, said interest rate rises had highlighted the lack of PT offerings as a “major issue”, especially for maturing limited company buy-to-let deals.

“Many landlords’ deals have expired, and they are now stuck with high standard variable rates (SVR) from specialist lenders, some of whom do not offer product transfers.

“Furthermore, they may be unable to refinance elsewhere due to the current stress test calculations meaning they are prisoners. Although higher-rate borrowers are profitable for lenders, the lack of consistency in product transfers does not help the image of the expanding specialist lending sector,” he noted.

Customer retention growing concern

Brokers said several specialist lenders have launched PT offerings over the past few months, and more at looking at developing such offerings in the coming months.

Joe Stallard, director and adviser of House and Holiday Home Mortgages, said: “We’re seeing loads more smaller, specialist lenders in the space right now and as technology and systems improve, we’re excited to see this is an area that’s opening up more and more.”

One such lender is Pepper Money, which launched a retention product earlier this year and is considering a PT offering later this year.

Chris Sykes, technical manager at Private Finance. added: “I think lenders are finding the retention of customers more and more important. They’ll see, especially in the current environment, where a lot of landlords aren’t able to refinance at the moment due to stress rates and having to make drastic decisions.”

He added that lenders would also be mindful that there was strong refinancing activity in the market through product transfers.

“So, do we want to lose these clients’ business? Or do we want to try and keep hold of them in the future if the costs of moving are expensive? Why should we sort of pay all the money again to re-underwrite a new cases when can keep hold of current cases as well. It’s just good business,” Sykes noted.

Non-bank lender funding can be barrier to PTs

Specialist lenders can struggle to offer PTs as they tend to be non-bank lenders, so their funding often comes from securitisation and money markets, which doesn’t easily allow for PTs.

Sykes explained: “They might have a fund or a contract with that funder where they will lend them a set amount for five years, and then they want that money back – obviously with interest payable during the term.

“They [lenders] can’t guarantee that they’re actually going to have the funds there to repay the existing funder they borrowed the money off to then lend to the clients. So, they’re not necessarily just sitting on this pot of cash that they can lend out. They need to have redemption dates, so they can say to whoever is financing them ‘yes, you will have your money back then’.”

He added that on the securtitisation side, the lender would go out and sell the debt on, and this would again usually be over a set period, but this added complications to paying back the funding by a set period of time.

Specialist lenders have also had to increasingly diversify their funding lines in recent months due to volatility in the financial markets, which could create additional complexity in launching a PT deal.

For instance, anecdotally, some non-bank lenders have increased their streams of funding from one or two streams to around 16 or 18 which each cater to a specific type of lending.

Sykes notes that specialist lenders tend to be newer and were still building their frameworks and their long-term propositions.

“As you are in the market for longer, you can start to offer those sorts of things [PTs] because you know it’s a market that you’re not just dipping your toes in anymore, it’s a market that you’re wanting to be in for a long time,” he added.

One source noted that specialist lenders entering the market wanted to gain scale and customers first before focusing on customer retention.

Brokers said those that do not offer a PT allow a remortgage back to the lender with full procuration fee so there is a workaround, but that it was not always a consistent process.

Sykes added that now when it came to advice, he would be more likely to recommend a specialist lender that had a retention product of some sort at the end of the term.

Lenders not offering PTs could breach Consumer Duty

Tony Crane, founder of Crane Consulting, said he expected Consumer Duty to have an impact on product transfer offerings.

There is still some uncertainty about whether buy-to-let and other unregulated areas of specialist lending would fall under the Consumer Duty umbrella, but the “fair value” approach regarding products could have read-across.

He said: “I’d expect Consumer Duty would change all of that. The need to assess fair value on the product, consider any change in circumstances through the product lifecycle and the requirement to ensure good customer understanding all add new servicing needs.

“In addition, I’d argue that a borrower reverting to SVR is a foreseeable harm, so all lenders will need to have activities in place, offering transfers for example, to ensure that doesn’t happen.”

Crane continued: “I’d go as far as saying that a lender deliberately not offering product transfer options at the end of a product’s promotional period would be in clear breach of Consumer Duty.

“Finally, lenders will also need to consider how they ensure customers with characteristics of vulnerability will access those product transfer services. It’s no longer good enough just to send a letter expecting the customer to do all of the work.”

Kensington Mortgages PT journey

One specialist lender who introduced a PT offering in recent months is Kensington Mortgages.

Vicki Harris, chief commercial officer at Kensington Mortgages, said it was important to launch a product transfer offering to retain customers.

“Borrowers are often attracted to the convenience of PTs, with less paperwork and extra costs than remortgaging, and the flexibility they provide for people’s evolving personal circumstances,” she added.

Harris said the lender had worked closely with third-party software company Koodoo to develop a digital portal with “accessibility and efficiency in mind”.

“While ensuring the simplicity of the service was challenging at times, we are very pleased with the end result and learned a lot about how to construct seamless customer journeys along the way,” she noted.

Harris said the broker feedback had been positive, with responses highlighting the “intuitive design” which allowed for a “quick and simple journey when interacting with the platform”.

She said specialist lenders considering putting together a PT offering should “aim to build the journey around the customer, rather than around your existing internal processes”.

“An intuitive customer-centric design is vital when creating an offering that brokers can utilise effectively and support them in providing the best possible service to their clients,” Harris explained.