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Brokers and lenders must rescue borrowers trapped on SVRs – TMA

by: David Copland, director of TMA mortgage club
  • 11/10/2016
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Brokers and lenders must rescue borrowers trapped on SVRs – TMA
With the prospect that many buy-to-let borrowers could suffer the same fate as residential mortgage prisoners, David Copland explains how brokers can protect their client from being trapped by their circumstances.

Many homeowners are currently benefitting from record low interest rates. With the prospect of yet another historic rate drop before the end of the year, some lenders are offering lower rates by thinning their profit margins. With the market primed for millions to remortgage, some mortgage holders are trapped and unable to switch lenders.

These so called ‘mortgage prisoners’ are facing a troubling prospect. A significant number of homeowners have reached the end of their fixed rate period and are being shifted onto uncompetitive SVRs, meaning they will have to pay extra each month every time the SVR increases. This is mostly affecting those that have had a change of circumstances since taking out the mortgage, such as a change of employment, loss of an income or a life changing event.

As a result, some lenders are now choosing the best customers to retain and leaving the others as prisoners on a standard SVR. Therefore brokers should always look at lenders track record on SVR or even consider products that are linked to a third party index such as bank base rate or LIBOR.

What’s more, we now have the prospect of landlords suffering the same fate. Lenders reacting to the PRA’s closer scrutiny of affordability following the tax changes have seen rental yield calculations sailing northwards. This means we have the very real prospect of landlords coming to the end of a mortgages promotional rate, and the rental yield calculation will no longer be enough either for a product switch or a remortgage.

So what can brokers do to protect their clients from the prospect of being trapped by their circumstances?

They need to be skilled at collecting the soft facts during the fact finding process. Information that suggests the bread winner is setting up their own business or has moved into contract work will drastically impact the broker’s advice. In this case, this should result in careful consideration of a fixed rate over a longer term or at least pay as much attention to the underlying rate that is being charged by the lenders.

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