Broker urges borrowers to weigh whole‑of‑market options when remortgaging
Remortgage borrowers who default to a simple product transfer risk paying a “loyalty premium” if they fail to compare their existing lender’s offer with the wider market, a broker has warned.
With Bank of England data showing approvals for remortgaging with a new lender rising, advisers report more clients questioning whether it still makes sense to “stick with their existing lender” for convenience when fixed-rate deals expire.
Stephen Kerr (pictured top), director at Kerr & Watson, said the decision between a product transfer and a full remortgage is highly individual, and cannot be reduced to headline rates alone. He said the time and administrative burden of a switch must be set against the potential saving, and that this calculation will differ from client to client.
“In addition to looking at the interest rate and the costs (for both the product and any fees they may incur by changing lenders), whether a full remortgage is worth it or not is bespoke to the individual,” said Stephen Kerr, director at Kerr & Watson. “As a full remortgage will usually involve more documentation, a valuation, underwriting and a legal service (including client questionnaires and more), the saving needs to be significant enough to justify the client’s time.”
Kerr added that borrowers often treat a product transfer as the obvious solution without fully understanding what they are giving up. “The product switch can be the easy solution, but the customer needs to know the total saving to make that decision,” he said.
Loyalty can carry a cost
Kerr pointed out that one of the most persistent misconceptions among borrowers is that long-standing customers will automatically be rewarded with competitive rates.“Lenders don’t always offer their best deals to existing customers and the ‘loyal ones’ get charged a premium,” he said. “This isn’t always the case, but it’s prudent to weigh up your current lender’s offering against the wider market.”
He argued that this “loyalty premium” can be especially stark for clients whose circumstances have improved over time, such as those who originally required specialist or sub-prime products but may now qualify for mainstream, lower-cost lending.
“Clients with past credit issues may be paying a premium for a sub-prime lender, and now enough time has passed for them to be able to refinance back to the high street, offering a sometimes significant saving on the rate,” Kerr explained.
For buy-to-let investors, he said changing rental dynamics can also open up options that were not available when they first took out the mortgage. “Buy-to-let borrowers, may be with a semi-specialist lender where the yield was previously not high enough to secure a more competitive rate,” he said. “It may be that rent increases or higher yields have led to more lenders being available again, sometimes securing a significantly lower rate.”
Beyond rate: future plans and flexibility
Kerr stressed that assessing a product transfer against a remortgage means looking beyond rate and fees to the borrower’s future plans and the flexibility they may need over the life of the loan.
“It’s always wise to fin out a client’s future plans before concluding that they should stay or leave their current lender,” he said. “For instance, they may have loose plans to let the property in the future and want consent to let to be an option if needed. If that was the case, it would be worth exploring how likely it would be granted by the current lender, versus others.”
Employment plans can also prove decisive. Kerr said that where clients are considering a move into self-employment, the ability to secure future product switches without undergoing full underwriting again can be valuable.
“If they think they may wish to go self employed at some point in the future, it would be best to recommend a lender that offers product switches later on (as some still don’t have that facility, requiring full underwriting again),” he said. “This is where advice is always more valuable than a quick uninformed decision.”
Convenience versus saving
Despite the potential benefits of switching lender, Kerr said there are cases where a product transfer is the more suitable option, particularly where clients place a high value on minimising disruption. “This is usually down to the level of convenience the client wants versus the amount they want to spend,” he said.
“Some clients may see £30 per month as a saving worth moving lenders for, whereas I have has clients that could save more, but when taking the extra effort on their side to go through a full remortgage, balanced against a busy lifestyle, they prefer to pay a premium to make life as easy as possible for them.”
Kerr said that framing the decision in terms of pounds saved versus the time and effort required can help clients reach a conclusion that reflects their priorities, but advisers should ensure borrowers understand what they are sacrificing if they choose convenience.
Need for proactive review
Looking ahead, Kerr does not believe rate volatility or tighter affordability alone will determine whether it is worth exploring options beyond a product transfer. Instead, he sees a continued role for systematic comparisons between the current lender and the wider market whenever a deal ends. “You are not obligated to jump just because there is a saving but not exploring it is doing yourself a disservice,” he said.
Kerr added that concerns about the time and complexity involved in assessing alternatives should not deter borrowers from seeking advice. “If you are concerned about the time it takes to find out, the broker will incur most of this doing the research so best to take advantage of that,” he said.
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