For some, avoiding intensive affordability checks while securing a favourable rate with a product transfer may seem like the better option.
So this week, Mortgage Solutions is asking: Do you suspect you’ll conduct a higher number of product transfers this year?
Whilst carefully checking the clients’ circumstances in all cases, we have indeed carried out more product transfers than last year due to the impact of Covid on a client’s income situation.
This is especially true for self-employed people who have received Self Employed Income Support Scheme (SEISS) grants, which some lenders don’t accept or assess on a case-by-case basis making it rather difficult to switch lenders at the moment.
Employed clients are mostly unaffected, as long as they are not on furlough anymore.
Meanwhile, contractors are impacted by the IR35 changes which came in this April and saw some umbrella companies dodging tax by changing their employee structure. This has made it difficult for some contractors to find a new contract, particularly during the turmoil of the pandemic.
All in all, yes, we can see an increase in product transfer applications compared to previous years.
This is certainly an interesting situation and as advisers, our role has definitely changed due to the pandemic.
Lenders have changed their processes significantly which is causing delays. On top of this, they are becoming a bit more savvy with their pricing for existing customers.
They have worked out it is cheaper for them to keep their existing customers rather than spend money obtaining new ones, which means they can shave a few points off their mortgage margins. If you are then purely advising on interest rates it becomes impossible to advise your client to change to a new lender which will lead to the advice of a rate switch.
Lenders are keen to fix people for longer too as it guarantees their own debt books, but the general public must be aware of any large early repayment charges that come with these attractive rates.
Lenders need to make their profit somewhere and fixing customers to long-term rates, then charging huge exit fees when individual circumstances change, seems to be a go-to strategy right now.
I believe they are hedging that a large portion of people will have to pay early repayment charges over the next five years. People need to remember, banks aim to make the maximum profit which they are not currently finding in their lending margins.
People’s lives are constantly changing and evolving. This means that the pricing of a mortgage falls pretty low on priorities for many.
It’s crucial for our advisers to stay close to our clients and make sure we are advising correctly, mitigating the risk of problems.
With the vast amount of change this year, there will probably be a lot more product transfers in 2021 as it could well be harder for a lot of individuals to remortgage away to a different lender.
In the past few months, there has been a lot of change in the job market; clients are now moving jobs, coming off furlough, some are going self-employed. All of these changes may make it harder for people to remortgage to a new lender and should result in more product transfers.
The positive is that product ranges are now back to virtually pre-pandemic levels, so the choice is there. To get that choice right, regardless of whether a client is having a remortgage or a product transfer, it is essential to conduct a thorough review.
One of the key differences in how Just Mortgages approaches product transfers is that our brokers take a holistic view of the client, much like we would with a new client. We will conduct a full fact-find, from top to bottom to understand what has changed.
Whether that is salary, or the client’s family circumstances have changed, our brokers do a comprehensive review with the client to ensure they are switched onto the right product and they have the right protection in place.
Once that review has been completed, it will become clear if a product transfer is the right move for the client, and our brokers can ensure they get the best advice possible.
With competition between lenders fierce, rates are currently extremely low, and most clients whose salary have held up will be better off switching products, rather than moving onto the lender’s standard variable rate.