Product Transfer Mortgages: Is It Better Than Remortgaging?

When the fixed rate term for your mortgage ends, or if you’re one of the 2 million homeowners already paying your lender’s standard variable rate (SVR), it’s time to find a new mortgage product.

The easiest way to do this is via a product transfer, but taking your lender up on one without checking what other deals are out there is not advised.

In this article we’ll explain what a mortgage product transfer is, how to complete one, and how to assess whether it is the right choice for you.

What is a mortgage product transfer?

A product transfer, sometimes known as a mortgage product switch, is the process of switching your mortgage to a new product with your existing provider.

Typically, you will receive a letter from your lender roughly three months before your fixed term runs out offering alternative products at rates that are preferable to the SVR.

If you are already on the SVR you will need to contact your lender and ask what product transfer options are available to you.

A product transfer is different from:

• Remortgaging which is where you apply for a new mortgage to pay off your existing one.
• Porting which is where you move your existing mortgage to a new property (usually if you move home while still tied-in to a fixed rate).

A product transfer is a like-for-like swap and does not allow additional borrowing.

Although these agreements are usually quicker and easier than a full remortgage, taking your lender up on a product transfer without checking what other options available is not recommended. You’d be limiting yourself to one set of mortgage deals when a superior one might be available elsewhere.

The product transfer process

The process of completing the product transfer is quite simple and can often be done online.

When you have reviewed your options and chosen to accept one of the product transfers offered, it is usually just a matter of signing to accept it.

In most cases the lender will not carry out a credit check, affordability assessment or new valuation.

This is because your debt is with them regardless and they are just offering you better terms.

Before you go ahead, however, it is best to do your research and make sure a product transfer is the best decision.

It will almost certainly be the most convenient, but your circumstances and future plans will dictate whether remortgaging is a better option.

Follow these steps to work out what is right for you:

Step 1. Get a valuation of your property

You can pay a surveyor to do this but there are also free ways to do it. Contact local estate agents or go online and check the government website for recent sale prices in your area. Both of these methods will give you a fair idea of your home’s value.

Your fixed rate deal that is due to end will most likely have been in place for three to five years. In that time, house prices will have risen and any renovations will have affected the value of your property.

Your existing lender will usually carry out a ‘desktop valuation’ of your property when completing a product transfer.

This will account for general price rises in the area but not renovations which are unique to your home.

Step 2. Work out the amount of equity you have

Once you know the value of your property you can calculate your equity, which is the percentage of the property you own outright, and the loan to value (LTV). The LTV is the ratio of your loan amount compared with the value of the property.

Most lenders use the House Price Index to work out the value of your property.

This information should be pre-populated along with the outstanding mortgage balance on your online mortgage account (if you have one). So, when you login the LTV should already be worked out for you.

These are important figures in determining your mortgage options and are therefore crucial in guiding your decision.

Step 3. Speak to a broker

A broker will do a comparison between your product transfer offers and all other mortgage options available to you, taking into consideration all factors, including:

• Equity
• LTV
• Affordability
• Credit history
• Eligibility criteria
• Your plans for the property
• Costs

As a product transfer requires less manpower and admin, the associated costs are fewer.

A broker will be able to calculate the overall costs of borrowing that will come with each of your product transfer and remortgage options to help you make the best decision for the long term.

Product transfer versus remortgage

Product transfers are generally simpler but can be more limited than remortgaging.

This is because you’re restricted to one lender’s product range and would be running the risk of missing out on a more suitable mortgage deal that’s on offer elsewhere.

This is the main drawback of product transfers, but to give you a firm idea of whether it’s the right option for you, we’ve rounded up their pros and cons below….

Advantages

• Quicker – can usually be done in around 10 days
• Less paperwork
• Affordability check is not always necessary
• Fewer or no fees
• No legal costs or solicitors’ fees
• No requirement for a new property valuation
• Often no credit check
• Available to homeowners who were furloughed or took payment holidays

Disadvantages

• Fewer options
• Many lenders reserve their best rates for new customers
• Cannot extend loan
• Don’t benefit from preferable rates based on equity or LTV
• There may be hidden fees
• Cannot add or remove people from the mortgage – e.g. if you have divorced or have a new partner
• Only really suitable for standard residential mortgages

Eligibility requirements

In many cases, your existing mortgage lender will do little or no checks before completing a product switch if:

• You have a standard residential mortgage
• There is no history of arrears on your loan
• You are employed full time
• You will be under 70 when the loan expires

For non-standard mortgage product transfers, you may be subject to eligibility checks that will mean you don’t get the benefit of a swift and hassle-free transaction.

Non-standard mortgages include:

• Mortgages for older borrowers
• Mortgaged for self-employed
• Buy-to-let
• Properties with negative equity

Affordability check – what’s involved?

If your application is subject to an affordability check you will need to provide evidence of your income and expense.

The documentation varies between lenders and while some will accept almost any documentary evidence of money coming into your account others will insist on particular documents. A broker will help make sure you only make an application for a product switch or remortgage you are eligible for based on your circumstances.

Do you need a deposit?

No, but you will need to hold enough equity in your property to meet the lender’s loan-to-value requirements for a product transfer.

This would typically be at least 10% equity, although some lenders might approve you with less than this.

What are lender’s attitudes?

Product transfers are not new and lenders are quite comfortable with them. That said, there is generally more focus on obtaining new customers than there is on retaining existing ones. This means that often the best rates are only available if you remortgage and switch mortgage provider.

Get matched with a remortgage expert today

While product switches can be completed quickly, it’s vitally important that you check the entire market before taking your lender up on one. Limiting yourself to just one set of mortgage products could mean that you miss out on the most suitable deal and the best rates.

We work with remortgage specialists who can compare what your current lender is prepared to offer you with every deal that you qualify for.

They can offer impartial advice about whether a product transfer is the best course of action, or introduce you to a lender who is prepared to offer you an even better deal, if that turns out to be an option.

Our free, broker matching service will put you in touch with a remortgage advisor with experience in securing the best deals for people in your position.

Call today on 0808 189 0463 or enquire online to arrange a no-obligation chat.