Product Transfer Mortgage
Lee and Neezam from Rebus talk all about the product transfer process.
What is a product transfer and how do they work?
I’ll explain how mortgage deals work so this makes a bit more sense. If you’re taking out a mortgage, you’ll most likely be on an initial rate, such as a two year fixed rate or a five year fixed rate. Or It could be a three year discounted variable rate. Either way, when that deal ends you will go on to the Standard Variable Rate with your lender.
You don’t want to go onto that standard variable rate because it is usually much higher than you’re used to paying. It’s also generally higher than you’d get by locking in a new deal with either the same lender or another lender.
A product transfer is a term that’s used, as is a ‘rate switch,’ when you stay with your existing lender – it’s basically switching from the current deal you’re on to a new one. If you’re on a two-year fixed rate, for example, the day that ends you can start a new deal. That way, you don’t go onto the standard variable rate.
So a product transfer specifically means staying with your current lender for a new deal.
Is it better to stay with your existing lender?
This is particularly how a mortgage broker can really help. More often than not, you will find that staying with your existing lender isn’t necessarily the better option.
Around four to six months before your deal expires, you’ll get a notification from your current lender to explain what’s on offer. But you should always review your options, not just three or four products from your current provider. I tend to find that there are better options from other banks.
When would I need a product transfer? Can I transfer early?
In terms of when you need a product transfer, it’s simply at the end of your current deal to avoid paying more than you need.
Generally speaking, if you’re looking at remortgaging from one lender to another, you need to start the process much earlier than if you’re doing a product transfer. From the lender’s point of view they are just switching you over from one deal to a new deal. They’re not having to find the money and lend it to you and go through a full assessment. It’s just a case of flicking a switch.
How early you can do that depends on the lender. In the past, the earliest you could lock in the deal was around three months before your deal ends. In the market now, at the start of 2023, rates are volatile and very unpredictable. Because of that we’re actually seeing more lenders allowing clients to lock in new deals as early as six months before.
If you’re coming to the end of your deal it will be quite obvious to a broker whether it’s worth you staying with your current lender and also how early you should lock in the deal.
How long does a product transfer take?
It can be instant with some lenders. It’s not advisable, but if your rate is expiring today, you could potentially obtain a new rate the next day.
Some lenders do require a couple of weeks to process it but in all honesty, it’s relatively straightforward and can be super quick. It’s definitely the easiest option. But it might not be the best option.
How much does a product transfer cost?
There are no legal fees because there’s no solicitor involved in a product transfer – so you save some money there. The only fees you may incur is a product fee or an arrangement fee, which is something the lender will charge you for the product itself.
You might remember when you first took out your first mortgage, you may have paid an arrangement fee of £999 or £499 to the lender – or they may not have charged you any fees at all. The fee can generally be added to the mortgage if you choose it to be. Depending on the process and your situation there might be a broker fee. Generally our fee would be low because the work is minimal.
This is one of the reasons people opt for a product transfer – once you calculate all the fees sometimes it’s not worth remortgaging to a new lender for a lower rate. Again, that’s something we help our clients to identify.
Do you need a credit check for a product transfer?
The short answer is no. You’re not borrowing any more than you already owe the bank, so it doesn’t require a credit check and no documents are required. It’s another big benefit – there’s no credit check and the lender just transfers the product across.
Can you cancel a product transfer?
Funnily enough this has been quite a talking point recently. Towards the end of last year (2022) we had a weird situation where interest rates shot up really quickly and then this year (2023) they have started to come back down again.
We’re used to locking in the rate before it goes up, so cancelling a product transfer isn’t usually relevant. But in this strange period of time, some people were locking in rates and then they dropped. And that’s when you would want to cancel your product transfer before it starts.
Some lenders took note of this and changed their process. Let’s say you’re fixed in until the end of March and you locked in a deal in early January. Then in February the lender reduces their rates. Some lenders now allow you to cancel the first deal and lock in a new one. But there are also other lenders that don’t do that.
Again, speaking to a broker for advice will help you kind of work out the best timing so you don’t regret making a product transfer.
No one knows what the future holds. So I often tell clients if a deal I’m recommending looks right and ticks all the boxes, it’s usually worth locking that new deal in. You can cancel with some lenders, but not always. That’s something that we’ll always point out to clients.
What other advice do you have on product transfers?
The one thing to take from this podcast is that product transfer is the easy way out. A lot of people choose it because they don’t know what else is out there. With remortgaging there’s a little bit more work involved, but it could be far more cost effective. So don’t rely on what your current lender is offering you, ask a mortgage broker to help you.
We’ll give you peace of mind as to whether it’s worthwhile remortgaging to another lender for a more competitive interest rate or product.
Clients often think that remortgaging seems like a lot of work. It’s not – and it’s well worth it to be more cost effective in the long run. So if you’re unsure, please seek advice from a mortgage broker.
It could be about looking at what’s most suitable. Perhaps another five-year fixed rate won’t be the best choice for you this time. Are you looking to borrow more money in the next year to do some work on your home? Are you planning on moving again in the next few years? Exploring the market will allow you to make sure you find a suitable lender and product to match your plans.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS
YOU MAY HAVE TO HAVE AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE
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