Brokers discuss the potential pitfalls
As has been well publicised, the market is undergoing a period of severe uncertainty, leaving many borrowers unsure of their next steps.
Yet despite this, mortgage brokers are seeing more instances of people undertaking product transfers directly, believing they present a more straightforward option.
But is that the case? Mortgage Introducer sought the views of brokers on what the potential pitfalls are of product transfers.
Sidestepping advice
Graham Taylor (pictured), managing director at Hudson Rose, said the fact that consumers generally look to take mortgage advice at initial application but, after that, can then choose to ‘self-service’ their mortgage is baffling and flies in the face of regulatory rules.
Considerations such as future home moves, job changes, inheritance and expanding families, Taylor said, are all crucial and must be taken into account when deciding on the correct product and structure for the mortgage.
“The product transfer system allows consumers to sidestep advice easily, and can lead to decisions that come back to bite them in future in the form of early repayment charges,” he added.
Ranald Mitchell, director at Charwin Private Clients, joked that a few clicks on an app and voila, your rate has changed, “who needs a broker right?”
“No advice, no understanding of underlying household and lifestyle pressures; just another convenient part of digital disruption,” he quipped.
Mitchell said, unfortunately, it is often the case that the borrower feels the disruption, and he added that financial advice goes way beyond getting a rate.
“Yes, rate is important but strategy, future planning and identification of opportunities for customers come through a good conversation with a broker,” Mitchell said.
Brokers understand the wider situation, Mitchell said, and take time to identify improvements clients may not even have thought about. Better customer outcomes, Mitchell said, is the end goal, so he questioned why consumers would deny themselves the overall advice opportunity, even if this results in a product transfer with their existing lender in the end.
Panicked customers
Laura Bairstow, founder at The Mortgage Masters, said borrowers panicking about rising rates, and choosing to product transfer with their current lender without consulting a broker, were potentially losing out on lower interest rates from alternative lenders and paying more than they need to.
“I have seen clients fix a rate when they are already struggling to meet their current repayments, leaving them financially vulnerable when they switch to the higher rate,” she said.
Had they been given proper advice, Bairstow said those clients would have been made aware of alternative options open to them, such as extending the term of their mortgage to keep repayments down.
Furthermore, she added that, in some scenarios, the customer’s current mortgage may no longer meet their requirements.
“For example, they may wish to have flexible features, such as having the option of making overpayments or porting the loan to a new property,” Bairstow said.
Jamie Lennox, director at Dimora Mortgages, said with so much despair in the mortgage market over the past nine months, mortgage holders were more likely to make rash decisions through fear of losing a rate without fully understanding the extent of that decision.
With more lenders offering a rate switch service on a non-advice basis, Lennox said it could be a recipe for disaster later down the line, when customers have shoehorned themselves into a product that may not fit their needs.
“With fewer purchase transactions being completed, lenders are hungrier than ever to keep hold of any existing customers, as they cannot afford to lose that client bank, which leads to more direct marketing looking for clients to fix in with them directly,” he said.
However, Lennox said there are still lenders out there that suggest speaking to a broker before making a decision, and we need to see more lenders follow suit to avoid poor financial outcomes for customers.
Do you believe product transfers are a good option for customers in the current economic environment? Let us know in the comment section below.
