Are we in a ‘perfect storm’ business-level situation when it comes to housing market activity? If so, what might this mean for advisers?
The latest figures from UK Finance point to a market that is struggling in a number of areas.
During the second quarter (Q2) of this year, borrowing for house purchases fell by nearly a third compared to Q2 2022, while first-time buyer and homemover purchases were down by 28% and 30% respectively.
The mainstay of many advice businesses during such periods of falling purchase activity tends to be remortgaging. However, a wide variety of challenges for borrowers — higher rates, affordability, etcetera — means many are opting, or having no choice but to opt, for a product transfer (PT) from their existing lender.
Most lenders pay less than a ‘normal’ proc fee for PTs
In Q2 2023, 84% of ‘remortgage deals’ were PTs; indeed, in April the figure was as high as 88% compared to an average of about 77% for the whole of 2022.
That is a significant shift upwards and tells you much about the options, or otherwise, many existing borrowers have when coming to the end of their special deal.
Cause for concern
These figures from UK Finance’s Household Finance Review are probably not telling advisers anything they don’t know. However, within them I’m sure lies some cause for concern, not just in those purchase borrowing transaction falls but in the sheer number of PTs being conducted, and what this may be doing to advice income levels.
PTs are being taken in greater numbers and advisers must consider what that means for their firm
We’re all acutely aware that most lenders pay less than a ‘normal’ proc fee for PT business, and it has to be said that the ancillary income associated with PT activity is likely to be down on what could be achievable with a remortgage.
Certainly, when it comes to the provision of conveyancing advice — which I hope is a matter of course for advisers when dealing with remortgage business — this is simply not going to be there with a PT. One wonders if advisers are able to maximise other cross-selling opportunities, such as protection, general insurance (GI) and the like, with clients who opt for a PT.
In particular, if the PT option is effectively the only one on the table, and with many borrowers having to pay more for their mortgage, will they have the financial mindset to want to potentially increase protection or GI cover?
The ancillary income associated with PT activity is likely to be down on what could be achievable with a remortgage
This is why such importance should be placed on borrowers who find a positive outcome in a remortgage recommendation rather than in a PT. And, dare I say it, with a growing number of lenders looking like they have more appetite for price cuts, there should be further remortgage options that fulfil this outcome.
Ancillary options
With a remortgage recommendation, this may provide advisers with a greater opportunity to discuss ancillary options; it certainly does in the conveyancing space, with options to take the cashback available and not put the client through the potential and lengthy minefield of free legals.
As we know, average completion times have continued to inch up for some time. By having a remortgage client take your conveyancing advice with a specialist firm — like those on our panels — not only do they get their own representation but they have a better chance of meeting the timescale required; and, of course, you continue to secure another income-building channel.
The latest figures from UK Finance point to a market that is struggling in a number of areas
It’s understandable that PTs are being taken in greater numbers, but advisers must consider what that means for their firm, and how they approach the rest of their business as a result.
Mark Snape is chief executive of Broker Conveyancing
This article featured in the October 2023 edition of MS.
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