Advisers rewarded for doing the right thing

The Council of Mortgage Lenders recently announced that remortgaging activity has dropped to its lowest level for five years.

Remortgaging acc-ounts for 30% of the market by value. This is the lowest level since August 2001 and a big fall from 42% only 12 months ago.

Looking further back, the level of re-mortgaging has occasionally hit levels of more than 50% of borrowing. The popularity of remortgaging at those levels was partly down to a slower purchase market but was also a by-product of increasing consumer awareness of how easy it was and how much money they could save.

So what is the reason for the recent demise in popularity of remortgage business?

The CML is quick to point out that it is because lenders are managing to retain more customers for longer by reducing the incentive to move to other lenders.

That’s pretty obvious but it’s more interesting to consider how they are going about this.

First, more lenders are offering rates that are either close to or the same as they offer to new borrowers, whereas not that long ago the SVR was the only option.

This makes it a more palatable proposition to a borrower to stick with their existing lender, as the deal is not dramatically higher in rate than another lender’s.

But lenders have also altered the costs of remortgaging dramatically and this has become a bigger barrier to switching.

Exit fees are the clearest example of cost manipulation to cut the benefits of remortgaging and act as a disincentive to switch.

Also, arrangement fees have been on the rise so while the rates on offer are as competitive as ever the fees that go with them have tended to increase.

The other element which is likely to grow is the involvement of intermediaries in the retention of borrowers.

A number of big lenders now reward the broker’s role in advising their clients.

If a broker does their job correctly they will assess what an existing lender can offer and hold that up against the open market. If it stacks up as the right product, taking into account any fees, the broker should be recommending that their client sticks with their existing lender.

There has been some consternation about this cutting the remortgage market but brokers are now being rewarded for something they should do in any case.

The fact that these transactions will not show up as remortgage business has little relevance if brokers remains in control and are re-warded for doing the right thing by their clients.