Understanding product transfers
Bob Hunt is chief executive of Paradigm Mortgage Services
To say the first batch of product transfer data, published by UK Finance, was surprising would be something of an understatement. These are figures which the industry has been waiting many years to see and, despite some educated guesses on just how big the market might be, I’m not sure many people thought it would be in the region of £200bn-plus a year.
I wouldn’t say there has been a concerted effort on the part of some lenders to keep these types of figures under wraps but, given historically, lenders have taken the bulk of this business without any advice element, then I’ll merely raise an eyebrow that we’ve made to wait this long to see the true depth of this sector.
Let’s make no bones about it, £53.7bn in a single quarter is large – on the current run rate that’s over £200bn added to the yearly gross lending figures which would put the entire mortgage market in the region of £450bn-plus per year. Indeed, product transfers alone represent around about four-fifths of the rest of the entire mortgage market and this takes a little time to get your head around, especially as AMI’s recent best guesstimate was £100bn.
Overall, there are some major positives to grasp here – over half of all transfers were ‘conducted on an advised basis’ and I would now urge advisers to concentrate even more on developing their offering in this area, given the size of the market. It is also perhaps time to again point to the ‘elephant in the room’ when it comes to product transfers and that’s the lower proc fees that are paid for such business.
As we have heard time and again, there is (or at least there shouldn’t be) any difference in the work involved for an adviser who chooses to recommend a client stay with their existing lender. Therefore, the decision to pay less for this business on lenders’ part is not ideal to say the least. Indeed, you could say its encouraging poor behaviour in the marketplace by not paying the same level of proc fee; I will just leave that one there but some forward-thinking lenders who value the intermediary profession should be (at the very least) looking at their policies in this area.
There could also be more done in this part of the market to highlight the advice profession and the benefits borrowers will receive. I was intrigued to hear UK Finance believes ‘mortgage advice’ is widely available through ‘direct channels’. How many existing borrowers are aware that this is ‘advice’ on just the lender’s product range? Are they being made aware of the true advice options available to them by their existing lenders? A number of lenders are highlighting this in their borrower communications, but certainly not all, and there perhaps needs to be more education to consumers that ‘direct advice’ is incredibly limited in its nature.
Finally, what should the FCA make of this? As AMI’s Robert Sinclair recently highlighted, the fact the regulator did not look at the product transfer market in its recent study is a significant oversight. How can you make mortgage market policy when you are not considering almost half of the business written? The measures and proposals outlined in the Mortgages Market Study Interim Report seem even more out of kilter when you have not included product transfers.
All market stakeholders might well suggest the regulator goes back to the drawing board on this one – can you seriously propose a way forward for the mortgage market without reviewing and understanding one of its biggest product areas?