Product Transfer Mortgage
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What is a product transfer mortgage?
Michael Webb talks us through product transfers and when they can be a good option.
In 30 minutes, you’ll know a lot more about getting your product transfer mortgage sorted.
What is a product transfer mortgage?
When you have a product that’s coming to an end – like a fixed rate deal – it’s where you stay with your current lender and transfer on to a new product that they offer. So instead of reverting onto the lender’s standard variable rate, you choose another fixed or tracker rate. There’s no gap – your fixed rate ends and your new rate begins.
How do product transfer mortgages work?
With a product transfer you simply maintain your current mortgage but renegotiate terms and conditions with your lender. For example, your fixed rate is ending and you are offered a set of new products. You choose the most appropriate one and transfer on to that when your product ends.
What are the benefits of a product transfer mortgage?
They are fairly simple to transact. Most lenders do no underwriting – they already have your risk on their books already so it’s a case of offering a competitive product that meets your needs.
Because there’s little underwriting – if any – you won’t need to provide documents or follow a legal process, and it can be done instantly or within just a few days.
Your mortgage continues, so it’s a seamless transfer; whereas when you remortgage, you have to guess what your mortgage value will be at the end date. You tend to end up borrowing more so there’s no shortfall. It’s less seamless.
Are there any drawbacks with a product transfer?
Yes, mainly that you are limited by how the lender values your property. If the loan to value is not correct, you might not get as good a deal as you would elsewhere. You can get a revaluation at your own cost, however, if you feel it would be beneficial.
You are also only choosing from the lender’s own products, which may not be as competitive or as wide ranging as other products in the market. So a product transfer should be part of the assessment at remortgage stage, exploring what is the most appropriate for the client.
How does a product transfer differ from a remortgage?
A remortgage is going to require you to have the new mortgage fully underwritten, your property revalued, electronically or physically, plus there’s a legal process to pay off the existing mortgage and draw down the funds for the new mortgage. So potentially there may be additional costs there.
A product transfer is a much simpler process. You’re not leaving your lender, you’re just picking a new product. A remortgage can also be declined for many reasons, whereas if you’re offered a product transfer, you’re seen as a satisfactory customer – otherwise you wouldn’t even be offered it.
Can I switch to a different lender when doing a product transfer mortgage?
No – you are tied into the existing terms and conditions with your lender. You can’t be with Halifax and move to Santander – that’s a remortgage. You would just pick a new Halifax product. If you want to go to a different lender you have to go through the remortgage process.
What are the eligibility criteria for a product transfer mortgage?
Most lenders are going to offer a suite of products appropriate for your Loan to Value. The overriding criteria is that you cannot be in any arrears – if you are, they will force you onto the standard variable rate and won’t offer you any new products. Your mortgage has to be up to date.
Do I need to pay fees for a product transfer?
If you go through a broker, that will be an advised process so there may be a fee – it’s part of a review on whether this is the most appropriate approach for you.
If you disagree with your lender’s indexation and the Loan to Value the lender is working from, you can pay to have your property valued. But be aware, there are no guarantees that your house will be valued at a higher price. We’ve had instances where clients have paid for a valuation and it’s actually come in at a lower value than the lender was using.
The product may have a fee, which applies to many fixed rate deals. Lenders often have products with zero fee, a small fee and a higher fee, with different interest rates for each. A good mortgage broker will assess which will be more appropriate for your situation.
But you will avoid some fees that apply to a remortgage. You won’t have to pay valuation fees, unless you choose to, there’s no application fee and no legal fees as there’s no need to do any legal work.
How long does the product transfer process take?
Most high street lenders have online systems which allow us to select the product instantly or within a couple of hours. There are also specific timeframes – for example we can often arrange a product transfer three months or six months before your current deal ends.
So speak to your mortgage broker with lots of time – the earlier you can secure a product, the better, especially if interest rates are rising. The switch doesn’t take place until the end of your current product.
Some lenders are more manual and there’s a bit of paperwork involved – then it can take a week or so.
Can I make any changes to my mortgage terms during a product transfer?
The only seamless change you can make is the interest rate – choosing a new fixed rate for a set amount of time, for example. Some lenders will let you change the mortgage term, to extend it over more years. But this involves underwriting, so there will be some affordability checks.
Will my monthly mortgage payments change with a product transfer?
Typically, yes, unless you’re moving to a product with exactly the same interest rate. It’s the interest rate that dictates the mortgage payments.
If you’re coming off one 4% deal and onto another 4% deal, your payments won’t change.
But if you’re coming off a 1.2% deal and onto a 5% rate, because that’s now the most appropriate for you, then yes, your payments will change.
With a product transfer you’ll get a mortgage offer, so you will know all the details of the new product long before there’s any change to your direct debit.
What happens when my fixed rate period ends with a product transfer?
Let’s say you take a two year fixed rate: three to six months before it ends your lender will offer you a suite of new products. Your mortgage broker will compare these deals with the whole of the market to see how they compare and whether there are any better options for you, depending on your circumstances and the market.
Can I apply for a fixed rate product transfer if I’m on a variable rate deal?
If your lender offers product transfers, which most do and you’re on a variable rate, you can apply for your transfer immediately. If it’s early in the month, you could arrange for it to change the next month.
If it’s a tracker rate there may be an end date to the deal, at which point you can switch to a fixed rate mortgage. If you have questions about moving from a variable rate, speak to a mortgage broker about your options.
Is it possible to add or remove someone to the mortgage during a product transfer?
This isn’t really a product transfer, it’s a transfer of equity. That requires legal work. So while a lender can agree to add or remove someone – even within a fixed rate term – they do need to underwrite that change. Typically they need to underwrite the affordability in either situation – adding or removing someone.
This wouldn’t normally be done through a broker, you would do it direct with the bank. Usually if you add or remove the person at the end of a deal it is simpler to remortgage under the new names, rather than deal direct with the bank to get it changed. It’s a more seamless process.
Can I borrow additional funds with a product transfer?
This will depend on your lender. Some lenders will allow you to borrow more, with a Further Advance. Some will allow brokers to do it, others want you to do it direct. Some lenders will only allow it at the time of a product transfer – but that will require full underwriting with the lender. So at that point, it’s a good idea to look at the whole market again to look at the best options for you, which may be a remortgage.
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Will I need to provide documents for a product transfer?
You need fewer documents, depending on the relationship you have with the broker you’re using, you may or may not need ID documents. You will definitely need the mortgage account number, so you need a mortgage statement.
Product transfers are an advised sale – not execution only – so we may still need evidence of your affordability to correctly advise you, even if these aren’t being provided to the lender.
Can I get a product transfer with bad credit?
It will depend on what the bad credit is. As long as your mortgage is up to date, lenders won’t do a credit check. So if you have other missed payments on your file, the lender won’t be aware. So yes, you can, as long as that bad credit doesn’t relate to your mortgage.
How can I compare different product transfer deals?
Obviously the product transfer deals will all be from the same lender, so it’s important to compare these with the rest of the market. You also need to decide which type of product will be most appropriate for you – a fixed or variable rate, over two, three, five or 10 years.
Then you can compare your options from the current lender and more widely. There may be some reason why you can’t access the open market – such as bad credit, for example – so seek advice on what’s suitable.
What should I consider when deciding whether to take a product transfer?
You need to consider the same factors as when you remortgage. Do you want a fixed or variable rate, do you fully understand the pros and cons of each? How long is left on your mortgage? Do you need to borrow more funds?
The process shouldn’t just be a product transfer – it should be an advised process where product transfer is the most suitable route for you.
Can I switch from interest only to a repayment mortgage with a product transfer?
If you have an interest only mortgage, you should still be offered product transfer options. That’s particularly true on Buy to Let where there are a lot of interest only deals. There are still a lot of interest only products in residential mortgages too.
Is there any government support available for product transfers?
Not really – a product transfer is just a lender offering you new options. One thing that does come into it, though, is the new Mortgage Charter, which is a government led initiative that encourages lenders to be more flexible with borrowers. That’s the only support for people with existing mortgages.
Can I use equity release with a product transfer mortgage?
Yes. If you want to take equity out of your property, with some lenders you can do a further advance at the same time as doing a product transfer.
Some will allow you a further advance as long as you’ve made six monthly payments to them. Again, it’s assessing whether that’s appropriate, or whether a remortgage with another lender would be more suitable for you. There are options there, but the discussion should be had with a mortgage broker over what’s most appropriate.
What happens if I want to sell my property before the product transfer term ends?
The product transfer is the name given to the process of switching from deal to another with the same lender. You’re not on a product transfer mortgage term. But you would be bound by the terms and conditions you have transferred onto, which you would be outlined in your mortgage offer.
When you do a product transfer, your offer outlines what your payments would be and any early repayment charges applicable if you were to settle your mortgage within the period that you’ve signed up for.
It could be that you transfer onto something without any early repayment charges, although quite unlikely. Your mortgage broker would run through that offer document with you to ensure you fully understand it.
Do I need to get a property valuation done for a product transfer?
When lenders offer product transfers, they use an ‘indexed valuation.’ There are different indexes, and a lot of them are publicised. Nationwide, Halifax and Lloyds Banking Group publish these monthly.
They outline how they’ve seen the market go up and down and how they’re valuing the property market based on these indexes.
So the lender will have a value for your property, class you with a certain Loan to Value and explain your product options within that category. That valuation can sometimes be high – or low – compared to what you think you would get when selling the property.
The value has been done electronically every month since you’ve had that mortgage. As long as you’re happy with it, you don’t need to do anything. The only time you would have to have a valuation is if you disagreed with the index valuation.
You might feel, for example, that while the lender has you at 85%, you should be at 75%. There is a big difference in the mortgage products at 75% – so lenders may allow you to pay for a physical valuation on your property. But be aware that valuation may well put you at 90%, not 75%. You’ve got to be really sure about what you’re doing – you could spend money and find yourself in a worse scenario.
Is it possible to switch from a Buy to Let mortgage on a product transfer?
Buy to Let mortgages typically do offer product transfers., although there was a period of time when lenders didn’t, based on the way that they were funded. You couldn’t renegotiate terms, but they would allow you to remortgage back to them with full underwriting.
Most have now moved over to a process where they can offer product transfers, and this is becoming much more popular as interest rates have risen and rental stress tests have become challenging to meet.
What happens if I miss a mortgage payment during a product transfer?
So I’m going to take this question in two ways. If you’ve applied for a product transfer, which you can do three to six months before your current deal ends, and you miss a payment before the new mortgage offer starts, there’s a high possibility that the lender will withdraw that offer.
In that case, you will go on to the standard variable rate, because you haven’t kept up the terms and conditions of your mortgage contract.
If your new product has begun, then you will just go through the usual process with the lender. Of course, if you continue to miss payments, eventually you could end up in a repossession situation.
But with one missed payment, you need to speak to your lender and work out a solution to get that up to date as soon as possible.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up with your mortgage repayments.