Banks are beginning to reduce the amount of time customers have to secure a new mortgage rate before their existing deal comes to an end.
Traditionally, many lenders allowed mortgage customers to lock in a new deal as early as six months before their current term expired. This gave borrowers a generous window to assess their options and sign up for a new rate. In many cases, customers could even switch to a better rate if one became available before the new deal started.
This approach became widespread after the mini-Budget of 2022, a time when mortgage rates were highly volatile. The extended window gave borrowers some breathing room during an uncertain period. However, as market conditions stabilise, lenders are now scaling back these options.
NatWest is the latest bank to reduce its product transfer window, cutting it from six months to just four. This change could mean less flexibility for borrowers as they prepare to remortgage.
For context, a product transfer happens when a borrower decides to stay with their existing lender rather than moving to a new one. Instead of remortgaging with another provider, they switch from their current mortgage product to a new one offered by the same bank.
These changes could lead to shorter decision-making periods for borrowers, potentially increasing the pressure to act quickly when securing a favourable rate.
Several major lenders, including NatWest, Halifax, Lloyds Bank, Santander, and Nationwide Building Society, have shortened their product transfer windows to just four months this year. This marks a notable change in the market as lenders move away from the extended lock-in periods that had become more common in recent years.
Barclays made the most significant adjustment in September, reducing its product transfer lock-in period from 180 days to just 90 days. This drastic change highlights the shifting priorities among lenders, as they appear to favour shorter timelines over the extended flexibility once offered to borrowers.
These reductions reflect a return to traditional practices, reversing the longer lock-in periods that were introduced to accommodate market volatility. Lenders have attributed the change to the rising costs of administration and funding, which they say make the longer windows less sustainable in the current economic climate.
The six-month product transfer period was originally introduced as part of the Government’s Mortgage Charter. This initiative aimed to support borrowers by offering them additional time to secure new deals during a period of soaring interest rates. The measure was particularly helpful following the economic turbulence caused by the 2022 mini-Budget, which led to significant uncertainty in the mortgage market.
By shortening these windows, lenders are shifting focus back to operational efficiency, leaving borrowers with less time to secure new deals before their current arrangements expire. This underscores the need for borrowers to remain proactive and stay informed about market trends to make timely decisions in securing favourable mortgage rates.
According to David Hollingworth, associate director at L&C Mortgages, the typical timeframe for existing borrowers to lock in a product transfer rate used to be around three to four months before interest rates started rising rapidly. This timeframe was the norm until the steep climbs in interest rates prompted a shift in borrower behaviour.
As interest rates began to surge, more borrowers sought to secure rates earlier, prompting many lenders to extend their lock-in windows for existing customers. In response to this demand, the Mortgage Charter introduced a provision allowing borrowers to select a deal up to six months in advance. This measure was intended to provide additional flexibility during a period of heightened market volatility.
However, not all lenders adopted the six-month window. For example, TSB and Yorkshire Building Society continued to offer shorter timeframes, sticking to their established practices.
Hollingworth also pointed out that as interest rates have now stabilised, there is likely to be less urgency for borrowers to lock in deals as early. He noted that this change should not pose significant challenges for most borrowers.
Shortening lock-in windows could also benefit lenders by making pricing strategies more manageable. When rates are falling, borrowers often switch to newer, lower-rate deals, which can create challenges for lenders in maintaining their financial models. Reducing the lock-in period helps mitigate such risks, ensuring that rates offered more accurately reflect the market’s current state.
The shift towards shorter lock-in windows may simplify the pricing of rates and reduce the additional administrative work often caused by frequent rate changes, according to industry experts. A shorter window allows lenders to provide a more accurate and up-to-date reflection of market conditions, ensuring that borrowers are offered rates that align with the current economic landscape.
However, it’s important to note that most mortgage offers for those remortgaging to a different lender, rather than staying with their existing one, remain valid for up to six months. This distinction gives borrowers more flexibility when switching lenders but often comes with additional requirements.
Mark Harris, chief executive of mortgage broker SPF Private Clients, highlighted that longer offer periods are still accessible for borrowers willing to switch lenders. However, this typically involves a full underwriting process, which can be time-consuming. Borrowers should also consider any upfront fees that may be necessary to secure a rate with a new lender and carefully plan their timelines to accommodate the underwriting and approval processes.
Harris also advised borrowers to be mindful of their options and timing when considering a product transfer or switching to a different lender. Changes in rates or lender requirements could affect the feasibility of locking in a preferred deal, making it crucial for borrowers to remain vigilant about the terms and processes involved.
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