Bank of England data published this morning showed that net approvals for remortgaging, which only capture remortgaging with a different lender, fell from 25,100 in August to 20,600 in September, the lowest level since January 1999 (18,300).
Brokers said the reason for the low volume of remortgages is the sharp rise in product transfers, as many people have no choice but to stay with their existing lender, lenders placing more emphasis on retaining borrowers to maintain market share given the lack of purchase activity, and broader apathy around seeking advice, which could prove costly.
Anil Mistry, director at Leicester-based broker, RNR Mortgage Solutions was unsurprised by the extremely low remortgage numbers: “No surprises here. This was bound to happen. With sky-high inflation and interest rates skyrocketing in the past year, lenders have been cranking up their mortgage stress tests and the way they assess borrowers. Your chances of scoring that mortgage you thought was a sure thing just over a year ago? Well, they’ve likely gone down the drain, even if your income and debts remain the same. Product transfers are the only option for some borrowers.”
Gary Bush, financial adviser at the Potters Bar-based broker, MortgageShop.com, agreed that affordability was a key reason for the ongoing decline in remortgages: “The level of remortgages for September is surprisingly low. In fact, I haven’t known a time when arranging a remortgage with a UK lender has been so troubled, with rate changes and lenders re-assessing assessed cases and niggling on so many points. The remortgage numbers highlight very clearly how many people have no choice but to stay with their existing lender due to affordability and lender processing reasons.”
According to Derek Watson, mortgage and protection adviser at McGill Mortgages, another reason for the rise in product transfers is lenders pricing more competitively to keep existing borrowers: “High numbers of borrowers are staying with their existing lender and opting for product transfers as lenders are currently offering lower rates for retention clients. I am not sure if this is to help their existing borrowers or because lenders are struggling for market share and would rather keep their clients than let them fall out the back door and go elsewhere. It may be a combination of the two.”
Hannah Bashford, director at Model Financial Solutions, also said convenience and ease are playing a role: “Affordability, fees and hassle all make product transfers an attractive option and this is feeding into the low level of remortgages. We live in a world of convenience and if someone is going to save a small amount over the rate period, but has to provide their last three months of payslips, bank statements, complete a questionnaire with the legal adviser and sign all the paperwork etc, is the saving worth it and have they really saved any money when you consider the time taken to complete the process? The simplicity of a product switch is certainly an attractive option and, for some borrowers, the only option.”
Much the same view was shared by Ross Lacey, director at Fairview Financial Management: “The product transfer is the lowest friction option, other than simply doing nothing at all and moving onto a standard variable rate, which would be very expensive. For some people, this will be the right option but I think there’s a risk that borrowers take the default view that staying with their existing lender will be the best option without fully exploring the other options, which could potentially save them hundreds each month.”
Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, agreed that convenience plays a role but warned borrowers of the dangers of choosing the wrong product: “Product Transfers, or Product Switches as they are sometimes known, are generally good value at the moment for many people. Maybe not the very lowest cost option, but close enough that the ease of not requiring a full application, underwriting and the legal process, makes the slightly higher cost worth paying. That being said, many lenders’ product transfer processes won’t allow for a straightforward change to the contract, so if you want to extend the term, for example, this can be far from simple. There are still, however, lots of potential pitfalls in remaining with your current lender. Even if you know the sort of deal you want, many lenders will have multiple versions of these products, meaning it is easy to make a mistake and end up paying more than you need to. For example, this could be by picking a deal with a great rate but high fee, which on a lower mortgage balance is not good value.”
Like Mistry, Jack Tutton, director at SJ Mortgages, was also unsurprised by the data: “This latest remortgage data isn’t a surprise and reflects what we are seeing in the market. People are staying with their existing lender due to the lack of competitive products offered by other lenders. Also, lenders are trying hard to retain more of their mortgage book due to the lack of movement in the purchase market. Affordability is another issue that we are seeing.”
Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions, added: “Many borrowers are understandably asking why have the hassle of valuations, slow legals, and the need for additional documents and underwriting when their existing lender is offering hassle-free product transfers at largely competitive rates. For many, only if the rates available from their current lender are seriously lacklustre does a remortgage to a new lender have any appeal or make sense. Factor in an obvious surge in product transfers driven by those who either wouldn’t meet current affordability standards or simply choose to overlook the crucial need for advice, and you have a mortgage landscape where convenience often trumps full exploration of all the options potentially available.”
Lewis Shaw, owner at Shaw Financial Services, echoed that sentiment: “The huge rise in product transfers is due to many borrowers either not fitting current affordability with new lenders or a broader apathy around seeking advice despite it being more important than ever.”
