While it has gone more smoothly than may have been anticipated for some lenders, there are others who have had challenges. I’m sure the fact that there is unlikely to be another change this year will therefore be a relief to many.
As the recent furore over the incorrect charging of interest on some borrowers’ arrears will attest, charging the right amount of interest once there has been a change can be a significant challenge to some lenders – especially those with a number of legacy systems. As any rate change affects millions of borrowers, it can be no mean feat to ensure it is correct for every customer.
To implement such changes successfully and compliantly, lenders need to have efficient and reliable account servicing systems, and institutions with large scale legacy systems seem to struggle more than those with more modern flexible systems. The newer, challenger banks are often in a better position because they have newer, more comprehensive and competent systems – this of course assumes they haven’t had systems forced on them via the breakup of a large banking group and they have chosen their new platforms wisely.
At least Mark Carney ruled out the option of base rates going into negative territory and the recent rise in inflation makes this less likely again. This will be a huge relief to lenders, many of which do not have the systems to cope with negative interest rates. While some lenders do have terms and conditions that prevent mortgage rates going into negative territory, others do not as it seemed too improbable to ever happen. For a while certainly, we were dangerously close to the point where, in theory, a bank would need to pay the mortgage holder for the privilege of having lent them money.
This situation seems less and less probable, but with the political and economic landscape changing almost on a daily basis anything is possible. One thing is sure, as we enter such unchartered waters, the T&Cs of all new mortgage contracts are likely to be far tighter than were the ones taken out several years ago.