Opportunities abound in the market
Bob Hunt
22 April 2021The latest Household Finance Review data from UK Finance, published in March, makes for interesting reading, not least because — even accounting for an abnormal year like 2020 — it appears to show some clear trends that may cause advisers to recalibrate their approach to remortgage business in particular.
First, the headlines, so to speak. We now know that gross mortgage lending was just over £243bn last year, understandably down from close to £268bn in 2019.
Purchase activity proved relatively robust, particularly once the stamp duty holiday was announced; indeed, the purchase completion figures for the fourth quarter of 2020 were the highest since those of Q4 2007, and December 2020 was up 30 per cent on the same month in 2019.
That said, overall, first-time buyer purchase loans were down by 13.7 per cent, homemovers down by 10.2 per cent and buy-to-let purchase loans down by 10.8 per cent.
There may also be a lot of interest in the remortgage/product transfer sector because, although both residential remortgage and BTL remortgage loan numbers were down by 21.2 per cent and 13.4 per cent respectively, PT numbers were off by only 2.6 per cent.
Strong performance
In other words, 2020 was still an exceptionally strong year for PT business, although it has been pointed out that, for those borrowers who were in the midst of mortgage payment deferral, their only option was a PT, given they were not allowed to remortgage.
That said, 2020's PT numbers were very close to those of 2019 — £1.2m, which means more than £168bn of PT business was written. The good news within this is that intermediaries are still taking a majority of that business. But it won't need me to tell you that many lenders don't pay a full procuration fee — you'll know the ones that do — and an ever-rising amount of PT business may well begin to bite in terms of income.
I am fully aware that advisers may think PTs have been done to death as a topic of discussion, and there is clearly a large number of clients for whom a PT is without doubt the most suitable option.
And few believe we'll see a drop in PT business. UK Finance estimates it will be up at £181bn in 2021, and advisers will want to secure as much of that business as possible. Every one of those opportunities presents the chance to create a borrower habit of renewing via an adviser, and in the typical life of a mortgage that could mean multiple mortgage transactions that add real value to the business.
Plus, interestingly, while the number of pound-for-pound remortgages has fallen away — undoubtedly also to do with the rise of PTs — remortgages with equity withdrawal grew in the second half of 2020, with many borrowers using the money for home improvements.
However, given the procuration fee policy many lenders have for PTs, and of course all the usual arguments — about the number of execution-only PTs also rising, the potential to lose clients, the greater use of tech targeting existing borrowers direct, etcetera — it's always worth advisers and firms considering their activity in this space and making sure that a PT is genuinely the right call for the client. It shouldn't be a line of least resistance, and an external remortgage in an ultra-competitive market may be a more appropriate option.
