Are you better off with a product transfer or remortgage for your home loan?

Despite recent announcements that many high-street providers are starting to reduce their mortgage rates, homeowners on fixed-rate deals are still facing higher prices when their arrangement ends.

However, some may be able to save money with a product transfer instead of remortgaging with a new lender.

Most customers would normally switch to a different lender at the end of a deal to avoid high standard variable rates and "bag the cheapest rate available to them", London & Country said in ThisIsMoney, but "affordability concerns" are preventing some from taking this route and they are opting for product transfers instead.

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According to banking trade body UK Finance, 1.6 million mortgage borrowers will reach the end of their deals in 2024 and although pricing has started to drop, many will face paying higher rates than before.

The average two-year fixed rate mortgage was priced at 6.29% as of 22 November, or 5.86% for a five-year fix, Moneyfacts data shows.

In contrast, the typical rate on a two-year fixed-rate mortgage with a 60% loan-to-value in November 2021 was 1.35%, according to Bank of England data. 

A 25-year £200,000 mortgage would have cost £786 per month in 2021 on a typical two-year fixed rate but would now cost £1,325.

UK Finance figures now show 84% of remortgaging deals were internal product transfers in the second quarter of 2023 and, within that, April was a record monthly high at 88%.

This shift tells you "much about the options, or otherwise" that borrowers have when they come to the end of their deals, said Mark Snape of Broker Conveyancing in Mortgage Strategy.

The difference between a remortgage and a product transfer

A product transfer is when you switch to a different mortgage deal with your current lender, while a remortgage is when you move to a new one. 

Using a product transfer with your existing lender can be "very quick to complete" said OnlineMortgageAdvisor, as they don't usually involve a full valuation of the property if you aren't borrowing anything extra. 

Borrowers don't have to go through the same "checks and balances" as a remortgage to a new lender, said ThisIsMoney, as there is no new affordability assessment and less paperwork.

You may have to pay an arrangement fee, said MoneySavingExpert, "but that's often it" as there are usually no legal, valuation or exit fees.

Benefits and drawbacks of a product transfer

A product transfer has "many benefits", said mortgage broker John Charcol, especially compared with remortgaging as there is less paperwork plus you don't usually have to prove your income and you may get "favoured rates" as an existing customer. 

It may be a "suitable solution", said Yellow Brick Mortgages, especially if your circumstances have changed and "you wouldn't fit other lenders' criteria or affordability assessments" for a remortgage.

There are "no guarantees" that your lender will give you a "leading rate" though, said MoneySavingExpert, so it is important to shop around to check if you can save money by remortgaging with a rival. There are restrictions though if you want to change or remove names such as if you get divorced or if you want to move house. 

Your choice is also "limited" to one lender's range, said MoneyToTheMasses, while a lack of valuation may mean you miss out on better deals from a lower loan-to-value and you can't usually change the mortgage term and amount borrowed.

Whether you choose a product transfer or remortgage, finding a deal before your current one ends is "key", said Which?, otherwise you will automatically be moved onto the standard variable rate, which is "almost always considerably more expensive".