Home Truths: Study highlights the importance of proactivity on product transfers

While there are signs that the property market may pick up as we move into next year, there’s little doubt that the engine room behind most broker businesses is currently likely to be remortgaging.

However, the rise of product transfers threatens to eat into the remortgage opportunity. Many lenders have developed streamlined direct-to-customer user journeys for their product transfer offerings and, where a broker is involved, the income available is often less than a full remortgage process. More importantly, though, is the concern that a product transfer may not be the best option for every customer and, without the benefit of professional advice, many may be sleepwalking into making choices that they don’t completely understand.

The 2023 Pepper Money Specialist Lending Study has found that two thirds of all respondents (66%) don’t know the difference between a remortgage and a product transfer. More than half (58%) said they wouldn’t be interested in a product transfer if it charged a higher rate than they could otherwise achieve even if it made the application process easier.

The message for brokers is clear – if you want to best serve your customers and your business, it’s vital that you take a proactive approach to educating, both your existing customer base and any potential new customers.

Even where customers do understand the difference between a remortgage and a product transfer, they can often rule themselves out of the option to remortgage as they assume that they wouldn’t meet the criteria of a new mortgage on the basis of failing affordability at current rates, or blips on their credit record.

However, lenders are introducing new product developments to help ease the squeeze on affordability. For example, at Pepper Money, we recently made a number of enhancements to our lending criteria to help customers maximise their affordability, by increasing the amount of variable income we will consider.

We can now include 100% of monthly bonuses or commissions and overtime payments. Plus, we accept 50% of annual or quarterly bonuses or commissions and 50% of rental income towards a customer’s affordability calculation. As well as these improvements, we also introduced the new option of a 40-year term to help customers spread their payments over a longer period, enhancing their affordability and increasing their disposable income.

One benefit of a remortgage over a product transfer is, of course, the potential to secure a cheaper rate by researching the market rather than just settling for the rate offered by the existing lender. Another advantage of a remortgage, unavailable on a product transfer, is the option to raise capital, which could, for example, be used to consolidate debts and lower monthly outgoings. This is an important tool for customers who want to restructure their finances to help them take greater control over their unsecured borrowing, and the latest Specialist Lending Study found that 43% say their level of debt has increased in the last 12 months, which is up from 33% last year.

Taking a considered approach to restructuring and managing finances is particularly important for those customers who are in the process of repairing their credit record, and this was the thinking behind the recent Pepper Money launch of a limited edition range of three-year fixed rate mortgages. For those customers who have historic defaults, CCJs or secured missed payments, it can often take up to six years to recover their credit profile to a point where they could qualify for a mortgage from a mainstream lender. However, most fixed rates from specialist lenders are only available for either two or five years, so our limited edition three-year fixed rates provide these customers with a new option to continue to repair their credit, helping to manage their money and achieve their objectives.

The whole purpose of mortgage advice is to ensure that individual customers achieve the best outcome for their own specific circumstances – and there’s no guarantee that a product transfer is the best option for your customers. Don’t let them sleepwalk into a choice they don’t necessarily understand.