With the clear affordability pressures facing the market, it’s hardly surprising to see high levels of product transfer business.
Across our nationwide broker network, it accounts for a large proportion of our remortgage business. However, given the greater regulatory focus on good customer outcomes from the likes of Consumer Duty, is it really in the best interest of those customers where this is often the only option on the table from lenders?
It does seem somewhat baffling that a client can borrow £400,000 from Lender A at 5%, and remain up to date on their payments, but is then unable to switch to Lender B when they come to remortgage.
Of course, it comes down to more stringent affordability calculations in the current climate, with lenders and their underwriters all having their own lending policies, criteria and appetites to risk.
Previously, a number of lenders would have been able to offer the client the amount they are borrowing, but this has changed dramatically.
While the borrower has done their part and played by the rules, the goalposts have changed significantly since taking out their mortgage and suddenly they don’t fit a new lender’s affordability requirements. This leaves many to choose, or have no choice but to choose a product transfer.
As a result, it does feel like some lenders are missing the bigger picture, and not just from the fact that the borrower has already proven their ability to secure the amount borrowed and to continue making those payments on time.
There’s also the point of good customer outcomes. The arrival of Consumer Duty from the FCA has pushed financial services to raise its game and really think about the outcomes customers are receiving to minimise any potential harm. To say expectations are high from the regulator is no understatement.
We therefore have to question whether forcing clients to product transfer is truly compatible with these new rules, especially when you consider the many clients that are unable to switch to a better deal and will be forced to stay on a higher rate for at least two or five years.
Of course, it is a hard one to enforce – the current lender would argue they are delivering a good outcome by providing the facility to move onto a new deal, instead of its higher SVR. Meanwhile, another lender is under no obligation to offer that client a better deal, especially if they believe it doesn’t work for them.
I’m not asking lenders to throw their rule books out of the window, and I certainly don’t want to see them be irresponsible with their lending. However, it feels like there’s a real opportunity for lenders to be bold, to be competitive and work with brokers to help deliver far better outcomes to a large number of borrowers. This is especially the case for those borrowers that have no real changes to their borrowing requirements and have a proven track record.
Don’t get me wrong – product transfers certainly have their place in the market, in many cases providing a stress-free option for borrowers that can be faster and incurs less fees. However, lenders do need to ensure that it isn’t the only option on the table for borrowers.
In any case, it is once again a reminder of just how critical it is for borrowers to speak to a broker. Rather than just accepting this offer from the current lender, it’s still important to review the whole of market.
A broker is best placed to do this and will be able to at least run the numbers and sanity check their offer to determine whether a better option is actually available. In doing so, a broker will also be able to conduct a comprehensive review with the client to ensure they are switched onto the right product and they have the right protection in place.
John Phillips is CEO of Just Mortgages and Spicerhaart
