2025 is here and, as a result, we are close to clarity on what 2024 delivered in terms of overall gross mortgage lending, plus we have some predictions about what this year might be about to offer us.
I won’t go into all the figures, but what perhaps stands out is the slight reverse in product transfer (PT) business through 2024, and while remortgage business also dipped, it was not as sharp as that experienced by PTs.
The PT dip may not last
UK Finance suggests PT business fell 7% to £224bn last year, while Intermediary Mortgage Lenders Association (IMLA) estimates it was close to £221bn, which would be a fall of a similar percentage.
However, given the predictions for anticipated PT business this year, both IMLA and UK Finance clearly believe the drop seen last year was only a temporary blip. The former suggests it will rise again to £240bn this year, while UK Finance thinks the rise could be even sharper, up at £254bn.
I think we would all have to anticipate PTs continuing to take up a significant amount of refinancing business.
The realities of retrofitting
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What I would also say is that the conditions present in 2024 that resulted in that fall in PT business might well be even more prevalent through the year ahead.
Influences on borrower decisions
Plus, we must factor adviser behaviour into all of this, weighed up alongside the wants and needs of the customer, and whether there are better product options available from other lenders compared to the existing one. Not forgetting the increased ability of existing borrowers to meet the affordability criteria of a new lender in a falling rate environment.
This remains, however, a complex picture.
For example, we must also expect that – certainly for existing borrowers coming off deals last secured in 2021 – this environment has moved in the opposite direction to the one they were able to access five years ago.
The likelihood is they will be facing higher rates on products than their last circa 2021 deal. For some, the allure of a PT might be overwhelming if the existing lender is there or thereabouts in terms of price competitiveness, plus the lack of fees that come with a PT.
However, that will not be the case for all remortgaging borrowers. Those coming off two-year deals, for instance, might well anticipate a market that is more favourable to them price-wise.
If we also factor in the expectation of, for example, bank base rate (BBR) cuts – potentially up to four this year, maybe more? – with subsequent shifts in swap rates, then a remortgage for these clients might be much more achievable and desirable.
And, of course, in all of this, we have to address the elephant in the room when it comes to PTs, which of course is the continuation of lower proc fees for such business from the vast majority of lenders.
A healthy remortgage market is needed
Advisory firms have certainly felt the pinch in a market where PTs at lower proc fees have grown in number each year, so it is somewhat pleasing to see their level having fallen last year.
This has been due to reasons outlined above, but there is also the income level consideration for advisory firms in all this.
Of course, no adviser is going to move through the process with their client and recommend a move to another lender if the costs are going to be that much greater, but we do have a very competitive market – with some lenders already making early price-cutting plays – and if there is a tangible difference, plus they can earn a full proc fee via a remortgage, then we would anticipate this recommendation to be given.
Will this be the year when lenders who might have relied upon huge amounts of PT business coming through the door see a significant amount of that moving to competitors?
It is, of course, far too early to say, but a competitive remortgage market right across the board is beneficial to both clients and advisers, particularly if it can save money for the former and earn more for the latter.
We shall all be watching with great interest and, at the very least, continuing to urge lenders to value the advice process and the advisers that provide them with their business.
PT proc fee parity remains out of reach for too many, but that doesn’t mean we shouldn’t continue to pursue it.
