Homeowners are increasingly choosing to stick with their current lender rather than remortgage to a new one when their deal ends.
Roughly half of borrowers remain with their current lender when their deal ends, according to data released exclusively to This is Money by broker L&C Mortgages.
This is a big increase compared to the first half of last year, before mortgage rates began hurtling upwards.
Back then, roughly a quarter of borrowers were sticking with their current lender, with the rest remortgaging to a different lender.
Staying put: Increasing numbers of mortgage holders have opted to stick with their current lender via a product transfer rather than remortgage to a new lender
During the second half of this year around 800,000 borrowers will come to the end of a mortgage deal, according to bank trade body UK Finance. Next year there will be a further 1.6million needing to remortgage.
According to L&C, most customers in this position would normally switch to a different lender to bag the cheapest rate available to them.
However, with average mortgage rates now at 5.67 per cent, according to Rightmove, affordability concerns may be preventing some borrowers from remortgaging to a different lender.
Fortunately any eligible customer coming to the end of a fixed-rate mortgage should be offered what is known as a ‘product transfer’ by their current lender.
This gives them the option to switch to a new deal with their existing lender instead of automatically being moved onto their lender’s more expensive standard variable rate (SVR).
The benefit of product transfers is that borrowers don’t have to go through all the same checks and balances they would if switching to a new lender – though it might also prevent them from getting the best possible deal.
Product transfers tend to require less paperwork, no new affordability assessment, and no re-valuation of the property.
There are typically few to no additional product fees required, and no solicitor costs either.
Higher costs: Average mortgage rates are now 5.67 per cent, meaning affordability concerns may prevent some borrowers from remortgaging to a different lender
To be eligible for a product transfer, customers need to be up to date with their monthly repayments, approaching the end of their fixed-rate term and not looking to borrow any more.
Borrowers also need to have a minimum remaining mortgage term of two years and an outstanding loan of at least £10,000.
David Hollingworth, associate director at L&C, says: ‘Borrowers face a squeeze on affordability from the rising cost of living and higher interest rates.
‘If there are issues in meeting criteria of other lenders then the product transfer could offer an alternative route to ensuring that a keen rate is maintained.
‘Switching the mortgage on a like-for-like basis avoids the need for an affordability test to be carried out where the borrower has kept up with their payments.’
In reality, the number of people opting to stick with their existing lender rather than remortgage to a new one is likely more than 50 per cent.
This is because some borrowers get their mortgage direct from a lender rather than using a mortgage broker, and are therefore less likely to shop around.
Hollingworth recommends anyone approaching the end of their deal to seek advice from a broker to get the best overall picture about what they should do.
He adds: ‘Some people won’t realise their adviser will be able to look at the options from the existing lender as well as searching the rest of the market to see if there might be a better deal.
‘That will help borrowers be sure that they are getting the very best deal for their circumstances and the adviser will even be able to put the deal in place for them, whether it’s with a new lender or the existing one.’
Why are product transfers so popular?
Switching to whichever lender is offering the cheapest deal at any given time is usually the way to ensure the lowest rates, albeit only if the customer is eligible.
However, L&C’s Hollingworth believes that many people now find the cheapest option is staying put.
‘Product transfers will definitely be more common, and lenders will have a keen focus on their approach to retention, and often price very competitive deals for their existing borrowers,’ says Hollingworth.
‘As a result it could be the best rate option for borrowers regardless of any concerns around criteria.’
Chris Sykes, technical director at mortgage broker Private Finance, says there is little point remortgaging to a new lender unless the rate is significantly cheaper.
Sykes says: ‘Whenever it comes to around six months before the end of a mortgage deal we look at a customer’s options, and whether a product transfer or remortgage is best.
‘A remortgage has to be sufficiently better to justify the additional work involved compared to a product transfer. A remortgage also has to cover additional costs, which include higher fees, possible solicitor’s costs, mortgage exit admin fees, possible valuation costs and so on.
‘Switching to a new lender also takes time, so this is also a factor to consider.
‘At many points this year, the top lenders have been quite close in their rates, so if for example you can get a product transfer at 5.5 per cent and another lender is slightly better at 5.45 per cent, that 0.05bps difference may not be enough of a saving to justify the work of a full remortgage.’
Weighing up the costs: There is little point remortgaging to a new lender unless the rate is significantly cheaper
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘There has been an increase in the number of borrowers opting for product transfers this year, not only with us but across the industry as a whole.
‘There are likely to be a number of reasons. Lenders may be offering enhanced product transfer offerings, meaning it’s not worth shopping around and going to the hassle of remortgaging to another lender.
‘Alternatively, borrowers may feel they know what they want and are confident to transact themselves by instructing their existing lender to go ahead with the product transfer, rather than seeking the advice of a broker.
‘Speed may also be a factor – generally speaking, product transfers can be arranged relatively quickly and simply, particularly if it is a pound-for-pound remortgage with no extra borrowing.’
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David Hollingworth is This is Money’s mortgage expert and a broker at L&C Mortgages.
He is ready to answer your homeloan questions, whether you are buying your first home, trying to remortgage amid the rates chaos or looking to plan further ahead.
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