The Intermediary – March 2025 - Flipbook - Page 47
RESIDENTIAL
Opinion
Product transfers
are only one
solution
W
ith circa
1.8 million
maturing
mortgage
product terms
occurring this
year, borrowers should understand all
the options available to them.
Over the past four years, brokers
have been largely managing the job
of helping clients – coming off very
low rates – to cope with sometimes
big jumps in their monthly payments.
Where possible, households have
absorbed higher repayments, choosing
to stick with their existing lender on
the same term via a product transfer
and skip the affordability assessment.
Not all have had that option, with
rocketing bills over the past four years
swallowing any spare disposable
income they might have had.
Switching to part-and-part or
to interest-only has helped some
borrowers, but for many, the option
to extend their term to spread
repayments over a longer period has
been the right course of action. This
is likely to continue in 2025 and into
2026, where clients are coming to the
end of 5-year fixed rates from a time
when some rates were sub-1% for
lower loan-to-values (LTVs).
With this in mind, there are a few
things to think about. First is the
recommendation of a product transfer
versus remortgage. Product transfers
have dominated the refinance market
for the past few years, in part because
of the economic environment aer
Covid-19, and the impact of interest
rates on stress testing. However, the
base rate falling has eased the pain of
affordability tests and increased the
options available to borrowers.
Second, there is the issue of longer
and shorter terms. Some borrowers
will need to extend their terms,
CRAIG HALL
is director, strategic
partnerships, financial
services, at LSL
necessitating a full remortgage
affordability assessment, whether
they stay with their lender or move
to another. This is likely to boost
remortgage activity this year. For
some people facing payment shocks,
extending the term is a key tactic
for guaranteeing they can stay in
their homes.
For customers who have the
prospect of cheaper home finance,
a shorter term may be required.
Remortgaging to a lower rate than
they’re on now could also bring
monthly repayments down.
There will need to be careful
conversations about whether to
take that saving back each month,
whether to use it to overpay up to early
repayment charge (ERC)-free limits to
minimise interest accrual, or whether
to refinance and bring mortgage terms
back down by as much as possible
within the borrower’s affordability.
Talking terms
In any and all of these scenarios,
talking to clients about protection is
vital. Term assurance must reflect
the new term of the mortgage, be
that longer or shorter. It’s not oen
something clients will consider, but
it’s arguably even more important
when agreeing to repay over 35 years
rather than 30, for example.
It’s not just the term that is geing
longer – the risk becomes higher,
too. Where borrowers’ terms are
extending into their 60s or 70s, the
need for life cover is not just sensible,
but necessary.
Talking about cover to pay off the
mortgage should one partner die,
where it is a joint mortgage and where
there are dependants, whether single
or joint, is a good opportunity to have
a wider conversation about other
forms of protection.
Product transfers
have dominated the
refinance market [...]
in part because of the
economic environment”
Protecting income is a no-brainer
for most borrowers, even where in the
past they might have considered it too
pricey. Factoring this or critical illness
cover into affordability calculations at
the point of refinance is something all
brokers should be looking at carefully
with their clients.
Working out how to cover costs may
also feed into term extensions – that
peace of mind is going to be worth
paying for. Many brokers worry
protection is a ‘hard sell’, but frankly,
no mortgage advice should come
without it.
Under the Consumer Duty,
especially, advice is about good
outcomes for borrowers. Giving them
cost upon cost upon cost is likely to
stress them out. However, doing the
sums to consider the remortgage, term
assurance and income protection that
borrowers can afford – by adjusting
the term – will offer much needed
stress relief for borrowers.
If anyone was ever in any doubt why
good advice is crucial for borrowers,
2025 offers a very clear example of
why every refinancing option should
be on the table. Brokers must be on the
front foot with these clients, so no one
misses out on the right deal. ●
March 2025 | The Intermediary
47
