How to obtain a better rate without changing lender – Product transfer
There is currently some disruption in the mortgage market for homes within tall buildings.
Following the tragedy at Grenfell Tower it is important that all building owners ensure that their buildings are appropriately safe for the people living there.
Unfortunately it has not been easy to evidence this due to confusing government advice, inconsistency in lender/valued information requests and inability in many cases of building owners to provide the requested information.
This has meant that many home-owners wanting to move, staircase, borrow additional funds or obtain a better mortgage interest rate than their current lender’s Standard Variable Rate (SVR) have been unable to move to another lender offering a lower interest rate.
The Royal Institution of Chartered Surveyors (RICS) led a cross-industry working group which agreed a new standardised process in December 2019. This will be used by valuers, lenders, building owners and fire safety experts in the valuation of high-rise homes, with actual or potential combustible materials to external wall systems and balconies. The approach was endorsed by industry bodies and the Ministry of Housing Communities and Local Government (MHCLG) is also supportive of the approach.
This process culminated in the production of an External Wall System form (EWS1). This requires a fire safety assessment to be conducted by a suitably qualified and competent professional, delivering assurance for lenders, valuers, residents, buyers and sellers. Only one assessment is needed for each building and this will be valid for five years.
Building owners are at different stages in commissioning EWS1 forms. Their production will depend on the specifics of the building, capacity in the industry, the number and type of buildings they have and their approach to prioritisation.
However, this does not mean that homeowners have to move on to a lender’s Standard Variable Rate in the meantime. It is possible for a homeowner to stay with their existing lender and select a new mortgage product. This is known as a Product Transfer.
We would always recommend talking to a Mortgage adviser to see what your options are when borrowing.
What is a Product Transfer mortgage?
A Product Transfer is when you move from your existing mortgage deal to a new one with your current lender. While it is not a new concept, a Product Transfer is a lesser-known option which may be a better alternative to Re mortgaging.
Once your fixed rate has ended, you are on your lender’s SVR, potentially resulting in your payments increasing. You may have the option of moving to another more favourable rate with your existing lender.
Assuming you want to keep your loan amount the same and are happy with your current lender, this would be classed as a Product Transfer because you’re just moving from one product to another and the savings could be substantial.
Please see table below for examples.
Sample of the 6 main lenders and examples of Standard Variable Rate (SVR) and Loan To Value (LTV)
|Current SVR||95% LTV||90% LTV||85% LTV||75% LTV||60% LTV|
|Lenders||2 Yr Rate||2 Yr Rate||2 Yr Rate||2 Yr Rate||2 Yr Rate|
|Leeds Building Society||5.69%||3.24%||2.90%|
Based on current lowest rates available for a loan of £100,000 over 25 years
What is the process for a Product Transfer?
The Product Transfer process is usually very straightforward. This is because a formal valuation on your property is not necessary as you are not Remortgaging or requesting additional borrowing.
Product Transfers can usually be quickly arranged with your mortgage advisor or lender.
Homeowners may be subject to an affordability check which would involve completing an income and expenditure form. However, most high street lenders do not require this to be carried out with standard Product Transfers. Once this has been completed, provided the credit check is approved (if applicable), the borrower will be provided with a Product Transfer document to sign. A handful of lenders may also require a re-evaluation of proof of income, but many do not.
Many lenders use property valuation software which return results very quickly, meaning that the whole process can potentially be completed in as little as a week.
What’s the difference between Product Transfers and Remortgaging?
As covered, a Product Transfer is typically a simple process involving switching from one mortgage product to another with your existing lender.
On the other hand, if you decide that you want to borrow more money, this would be classed as a “Further Advance” if you stay with your current lender, or a Remortgage if you decided to move to a new lender at a different rate.
When it comes to Remortgaging, Further Advances, or any other form of ‘non-standard’ Product Transfer (eg. extending the terms of your mortgage), the process involved is more extensive. It will usually require a full Mortgage Valuation and additional legal work, as well as the usual credit checks and affordability assessments.
Advantages of a Product Transfer
The main advantages of a Product Transfer over the alternatives are:
- In most cases you will not be subject to a full valuation
- There are not usually any legal steps or fees to pay
- Fewer fees overall due to fewer stages and people involved in the process
- Less paperwork to fill out
- Cheaper rates
- No other options due to cladding
Your home may be repossessed if you do not keep up repayments on your mortgage.