Will 2023 be the year of the product transfer?

There are many benefits of a product transfer. The customer is staying with their existing lender, so usually there is no need for legal work or physical valuations, making the process much quicker than a remortgage. There is also no underwriting required, which works well for the affordability of both buy-to-let and residential mortgages.

The customer, on paper, may no longer be able to afford the loan or may have suffered from some credit blips. This will not affect their ability to switch to a new mortgage product. Most lenders in the mainstream market have a product transfer option, which they allow brokers to access and pay a commission when this solution is offered to their customers.

However, it's important that advisers do not skip over giving advice just because the process is more straightforward. Product transfers should still be explored and compared to remortgages if your client qualifies. Some lender’s product transfer applications ask if the customer has received advice on the product transfer, and if you answer no, the lender will not allow the application to proceed. Under Consumer Duty, it would be hard to justify why someone would need advice on a remortgage but not need it on a product transfer.

If, as an adviser, you operate in the specialist lending market, you may find that the main product transfers are not on offer from all specialist lenders. This is to do with how the lender is funded. Selling the loan book into the capital markets, called securitisation, is how some specialist lenders receive their next batch of money to lend. A loan book is typically sold as a complete package of mortgages with fixed contracts that do not usually facilitate either rate switches or even further advances.

When selling these products, it’s important for advisers to make sure that customers are made aware of the limitations. It’s also worth shopping about for specialist lenders that have tried to address the problem using different funding lines, as there is a marked recent increase of specialist lenders looking at ways to offer product transfers.

When advising a customer who has come to the end of their mortgage deal, they may have a rate shock due to the current market.

If their affordability and credit are reasonable, you can proceed as you usually would with researching the best solution, whether a remortgage or product transfer. However, if the existing lender does not offer a product transfer and your customer struggles to meet the criteria for a new remortgage, there will be more limited options.

The regulator does allow lenders to offer like-for-like remortgages with a more relaxed affordability assessment, but not many lenders offer products that adopt this rule. It is worth shopping about, though, as a few may assist your client.

If reverting to the lender’s standard variable rate will cause these clients difficulty, the FCA has directed lenders to offer flexibility, such as allowing borrowers to switch to interest only. Hence, it’s worth suggesting this to your customers.

An increase in the number of product transfers may affect the adviser’s income levels. This is because many lenders offer a lower commission level for product transfers than for new business. If we truly are in the year of the product transfer, advisers may need to increase the number of customers they work with or invest more time in the knowledge needed to help customers in other areas, such as protection.