To say that product transfers (PTs) are a big deal in the mortgage market would be something of an understatement, and when you look at the level of PT business in recent years – and what is anticipated over the next 24 months – you can see why there is a lot of attention paid to this part of the market.
Looking at the latest UK Finance figures and forecasts, it says PT business hit £197bn last year, is expected to increase to £212bn this year before falling back slightly to £193bn in 2024.
And to think prior to 2019 the wider industry – specifically advisers – had no real clue about the level of PT lending going on each year. When it’s yearly figure of £168bn was announced, I remember many being somewhat blown away by how deep this sector was (and is).
Since we’ve known the real PT figure, it has outstripped homeowner purchase lending every single year, and is expected to do the same again this year and next, plus it has always been more than double the amount of homeowner remortgage business.
In other words, it’s a big deal, and it’s especially a big deal to lenders, who – perhaps unsurprisingly – were always loathe to give away the exact amount of PT business they completed in any given year.
One can’t help but wonder if, having opened that particular ‘bottle’, a number of lenders are wondering whether they can put now put the genie back in, especially as the intermediary share of PT business has increased considerably.
My recollection is that advisers were certainly not responsible for a majority of PT business – as they are now – back five and more years ago, and that when you consider this was costing lenders a very small amount in securing the business, it was probably adding a considerable amount to the bottom line.
Now, you might suggest that things have definitively moved in the advisers’ favour when it comes to PT business, but it’s still nowhere near a level playing field for any number of reasons.
Firstly, many lenders don’t pay advisers the full procuration fee for PT business – a real slap in the face when advisers are carrying out the same amount of work on these clients as they would for a remortgage. Indeed, they have to make sure there isn’t a better remortgage deal available to the client, so they are effectively getting paid less for providing the right advice to those for whom it’s best to stay with the original lender.
Secondly, despite the importance of advice, and the fact a product transfer offer should always be taken to an adviser to double-check it against what is also available, a number of lenders don’t do much to point the borrower in that direction, either specifically to the original adviser or indeed to advisers in general.
This is problematic on a number of levels, not least the fact a PT product option from a lender takes no account of any changed circumstances on the borrowers’ part, and of course by going direct here, the borrower loses all the protections afforded to them by using an adviser. Good luck seeking redress when you’ve simply ticked a box.
However, there is a more recent shift that does point towards a positive direction for advisers, and in a true sense, shows that advisers are taking the PT bull by the horns.
So, according to IMLA’s latest report, while PT business has been on the rise, and is expected to rise further, the ratio of PT to remo in 2022 actually fell back. In other words, in 2021 there were nearly four PTs written to every remo, but that fell back to 3.1 in the year to September 2022.
It suggests that borrowers were ‘shopping around’ more and not simply accepting their first PT offer from their existing lender. By ‘shopping around’ I assume they mean using an adviser more, because as we know advisers’ share of the entire mortgage market is well over 80% now, and the message has permeated wide and far that, regardless of circumstances or just how good the borrower feels the PT offer might be, it undoubtedly pays to take that information to an adviser to get access to the whole of the market.
Clearly, advisers must continue to push that message, because not only will a remortgage tend to pay more in terms of procuration fee – although a thumbs up to those lenders who do pay the same for each – but seeing a client at the point of remortgage is also likely to open the door to their other wants and needs, all of which can be serviced at this point. Whether that’s GI, protection, legal services, surveying work or conveyancing, you can’t offer these to a borrower who has simply gone direct for a PT.
So, while it is positive that advisers have a greater share of the PT pie, what we do know is that – with market competition as it is and the importance of making sure the mortgage monthly payment is kept as low as possible for all borrowers – there are likely to be plenty of remortgage options available that will not only be the very best advice for the client, but will also provide good income for the firm. Let’s not miss out on that.
Mark Snape is chief executive officer of Broker Conveyancing