Will other lenders follow suit and could this help boost brokers’ remortgage business?
Giving their view in this week’s Market Watch are:
Martin Wade, director at Your Mortgage Decisions
John Heron, chairman of the Intermediary Mortgage Lenders Association (IMLA)
Paul Shearman, mortgage, protection and GI proposition director at Openwork
Martin Wade, director at Your Mortgage Decisions.
Speaking as a mortgage broker, seeing a lender raise its SVR without a rise in the Bank of England base rate is good news for future business.
Remortgage volumes are low and set to stay that way unless we see an upward move in the base rate or, in this case, a lender acting independently.
Many borrowers are enjoying a prolonged period of “never to be repeated” deals providing a great opportunity to overpay debts – mortgage and non-mortgage.
However, some people are still not taking advantage of the opportunity to overpay, either because they cannot afford to or they simply have not got round to it.
We all know the risks of taking a rate linked to an SVR, as they typically rise quicker and fall slower than a BofE tracker.
In this instance, it is unfortunate for many borrowers, as the lenders they are with are not offering any alternative.
However, there is a dangerous game being played out here.
In reality, one rise of just over 0.1% is unlikely to force widespread arrears or repossessions within their lending books, given that it will equate to a rise of about £12 a month on the average loan.
The risk is that if they do it once, what is to say they will not do it again and again?
Given that these lenders are no longer looking to attract new business, they have very little to fear from reputational risk.
The fact is, they probably are looking to defray some of the increasing costs associated with running these books, but that will not allow them to avoid the accusation of profiteering.
John Heron, chairman of IMLA
It would not be a surprise to see other lenders review their SVRs in light of the current disruption in the eurozone and the Bank of Scotland and The Mortgage Business’ decisions to raise their SVRs.
These lenders were already at the lower end of the range in terms of variable rates, but the move will still be a disappointment to approximately 170,000 customers.
Lloyds Banking Group cited the increased cost of funding and higher capital costs for the hike and there are certainly renewed pressures on real interest rates, because of credit tightening caused by the on-going issues in the eurozone.
Libor is once again becoming detached from the Bank base rate and, at the time of writing, looks as if it is about to breach the 1% barrier.
This is often a catalyst to higher mortgage rates.
Whether an 11 basis point movement in SVR is enough to compel a borrower to remortgage has yet to be seen, but it will certainly make many homeowners sit up and pay attention and perhaps think about shopping around.
There are some great mortgage rates still available in the owner-occupied market and some borrowers may prefer the security of a medium-term fix than be at the mercy of the markets.
Intermediaries should certainly be looking at their customer databases to see who they could potentially help out.
However, what will drive a broader review in SVRs is a movement in Bank base rate and this looks unlikely in the near term.
Yet, given the volatility in current markets, you can never say never.
Paul Shearman, mortgage, protection and GI proposition director Openwork
Following increases to SVRs in 2009 and 2010, levels have remained broadly stable.
The Lloyds Banking Group announcement of its decision to increase SVRs for Bank of Scotland and TMB could therefore spark the beginning of more increases.
This is particularly true amongst smaller players seeking to enhance margins in what remains a very tough trading environment for many.
Clearly, this will only be possible where borrower terms and conditions allow and I suspect that any widespread increases in SVRs are likely to raise the interest of government and the regulator, which will be keen to see changes justified.
In terms of remortgaging, there is no doubt that the Lloyds increases offer opportunities for advisers to re-visit their clients.
The average SVR across the market is approaching 5%, with a number of lenders with SVRs of 6%-plus.
Contrast this to current deals, with two- and three-year fixed rates at 3.5% or lower and the client proposition is compelling.
With the level of global uncertainty impacting wholesale funding, it is unlikely that we will see rates moving anywhere but upwards in coming weeks.
Many clients with the Bank of Scotland and TMB may well have been originally placed on a self-cert mortgage, but with the passage of time many should now be in a position to provide evidence of income.
Now, therefore, seems a great time for advisers to educate clients on the need to take action sooner rather than later.
