New data from UK Finance revealed in the period between 1 April and 30 June, 84% of remortgaging deals involved borrowers using this option – known as a product transfer – to renew their mortgage.
Explained: What’s a product transfer?
Product transfers are a type of remortgage. Instead of the borrower taking out a brand new mortgage with another lender, they simply switch to a deal with their current lender.
The benefit is they do not need to go through the application process and affordability testing, so they won’t need any documents. For this reason the whole process is quicker and easier.
The disadvantage of this route is the customer will not get to access other deals and rates available across the whole of the market.
UK Finance said the borrowers who used product transfers were generally now paying much higher rates than they were before. However, they were still below the stress test rates which had been initially carried out when they took out their previous mortgages. Therefore, whilst there are significant pressures on household finances at the moment, customers still have some wiggle room in their budgets after refinancing.
According to Jamie Lennox, director at Dimora Mortgages, lenders had begun offering some really good deals on product transfers, which may account for their rise in popularity recently.
He said: “With the slowdown in property purchases in 2023, lenders couldn’t afford to lose their existing customers to other lenders and we therefore underwent a period where many were offering extremely competitive terms for borrowers to stay with them.
“The other factor is you have a large number of mortgage holders coming off ultra-low interest rates who stretched themselves to the max on affordability during the crazy Covid period.
“With lenders now tightening their affordability models, mortgage holders are now finding they can no longer switch to a new lender.”
What’s the outlook for mortgage borrowing this year?
Mortgage borrowing amongst home buyers dropped sharply in the first six months of the year as people struggled with affordability problems and rising interest rates.
First-time buyer purchases were down 28% between the start of April and the end of June compared to the same period last year, according to UK Finance.
Meanwhile home mover purchases plummeted by 30% during the same time.
Nicholas Mendes, mortgage technical manager at John Charcol, thinks borrowers will continue to face challenges for the rest of the year.
“Mortgage rates have remained relatively higher for long periods in Q2 compared to early 2024 and show no signs of easing suddenly,” he said.
“Many mortgage holders are tied into longer term fixed rates, with a higher proportion coming out of these deal in 2024 vs 2023, which will add pressure on future purchase activity if rates remain higher for longer than expected.
“Two-year fixed rates will be many mortgages’ holders default option over the next 12 months as those looking to move opt to wait for stability in the market and rates to settle to maximise borrowing affordability.
“With those able to afford additional borrowing at higher rates able to move in the current climate.”
