Mortgage product transfers hit document excessive as affordability bites

Mortgage product transfers hit a document excessive this 12 months amid surging interest rate chaos, prompting lenders to scramble to retain enterprise.

According to data published by UK Finance, the second quarter of the 12 months noticed 84 % of remortgaging offers going down as inside product transfers and inside that, April was a document month-to-month excessive at 88 %. By comparability, the typical for 2022 as an entire was round 77 %.

Peter Stamford, director and lead advisor at Moor Mortgages mentioned: “With the property market cooling this year, it pushed lenders into a retention war, offering competitive product transfer rates to keep homeowners from switching.

“These product transfers are super quick and don’t usually require full affordability checks, and as such have become increasingly popular, especially for mortgage holders whose budgets aren’t as strong as they were two to five years ago.”

Mr Stamford added: “Lenders, anxious not to lose business, have made these offers even more appealing by allowing advanced booking and rate re-negotiations.

“Though initially a tactic to prevent customer exodus, product transfers have evolved into a primary option for many, including landlords stymied by tightened affordability constraints in the buy-to-let market.”

The mortgage constitution now asks lenders to open a six-month window to supply new retention charges, which suggests current debtors can lock in a brand new price with their present lender a lot earlier.

Consequently, Jamie Lennox, director at Dimora Mortgages mentioned extra lenders have been providing “extremely” aggressive phrases to retain their clients amidst the uncertainty.

Mr Lennox wrote on platform Newspage: “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.”

The mortgage affordability stress take a look at, which was launched in a bid to tighten up the mortgage market following the 2008 monetary disaster, was scrapped by the Bank of England in August 2022.

Lenders used the take a look at to find out if potential patrons might afford the month-to-month remortgage funds for the property – together with within the cases that rates of interest would enhance by three %.

Analysis of the information reveals that whereas folks are actually paying “materially” greater charges, these charges are nonetheless beneath the prior stress take a look at price utilized when the mortgage was initially taken out.

This means clients ought to usually retain a “decent level” of wiggle room of their budgets after refinancing, regardless of the numerous strain imposed on households in the meanwhile.

Eric Leenders, managing director of non-public finance at UK Finance, mentioned: “Around 700,000 borrowers have come off their fixed rate deal in the first half of this year and likely found themselves on a much higher rate, which continues to be largely affordable because of the “stress tests” utilized when the mortgage was initially taken out.

“But circumstances can change, so if anyone is struggling with their mortgage payments, they should reach out to their lender who will have a range of tailored support available to help.”