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For some, avoiding intensive affordability checks and securing a favorable rate with a product transfer may seem like the better option.
So this week Mortgage Solutions asks: Do you suspect you will be making more product transfers this year?
While we have carefully monitored customers’ circumstances in all cases, we have indeed made more product transfers than last year due to the impact of Covid on a customer’s income situation.
This is especially true for self-employed workers who have received a SEISS (Self Employed Income Support Scheme) grant, which some lenders do not accept or review on a case-by-case basis, making it quite difficult to switch lenders at the moment.
Working customers are usually not bothered by this, as long as they are no longer on leave.
Meanwhile, contractors are being hit by the IR35 changes introduced in April and have seen some umbrella companies avoid tax by changing their employee structure. This has made it difficult for some contractors to find a new contract, especially during the turmoil of the pandemic.
Overall, yes, we are seeing an increase in product transfer requests compared to previous years.
This is certainly an interesting situation and as advisors our role has certainly changed due to the pandemic.
Lenders have changed their processes significantly, causing delays. In addition, they are getting smarter with their pricing for existing customers.
They have found that it is cheaper for them to keep their existing customers rather than spend money on buying new ones, which means they can save a few points on their mortgage margins. If you then give purely interest advice, it becomes impossible to advise your customer to switch to a new lender and that leads to the advice of a rate change.
Lenders also like to fix people for longer because it guarantees their own debt books, but the general public should be aware of the high prepayment charges that come with these attractive rates.
Lenders have to make a profit somewhere and fix customers on long-term interest rates, then charge huge exit fees when individual circumstances change seems to be a go-to strategy right now.
I think they’re hedging against the fact that a lot of people will have to pay early repayments in the next five years. People should remember that banks aim to make the maximum profit that they are not currently finding in their lending margins.
People’s lives are constantly changing and evolving. This means that mortgage pricing is quite low on the priority list for many.
It is critical for our advisors to stay close to our clients and ensure that we advise correctly, reducing the risk of problems.
With the huge amount of change this year, there will likely be many more product transfers in 2021 as it may be more difficult for many individuals to transfer to another lender.
A lot has changed in the labor market in recent months; customers are now moving from jobs, taking leave, some are self-employed. All of these changes could make it more difficult for people to switch to a new lender and should result in more product transfers.
On the upside, product ranges are now back at near pre-pandemic levels, so the choice is there. To make that choice right, whether a customer has a remortgage or a product transfer, it is essential to conduct a thorough assessment.
One of the main differences in the way Just Mortgages approaches product transfers is that our brokers have a holistic view of the customer, just like we would with a new customer. We will conduct a full fact-finding, top to bottom, to understand what has changed.
Whether that’s salary, or the client’s family circumstances have changed, our brokers do a comprehensive review with the client to ensure they’ve switched to the right product and have the right protection.
Once that review is complete, it becomes clear whether a product transfer is the right move for the customer, and our brokers can ensure they receive the best possible advice.
With competition between lenders fierce, rates are currently extremely low, and most constant pay customers are better off switching products rather than switching to the lender’s standard variable rate.
Shekina is a reporter at Mortgage Solutions. She has over two years of experience in the B2B publishing market, with previous industries including the pet, funeral, hospitality, retail and jewelry trade. Follow her on Twitter at @ShekinaMS
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