Tesco Bank chief executive Gerry Mallon said the company made sure the mortgage book was sold to a purchaser that would “continue to serve [its] customers well” but when it comes to people’s finances, it’s no surprise that doubts and worries might arise.
So this week, Mortgage Solutions is asking brokers: How would you reassure customers who have had their mortgage book sold to another lender?
My primary advice for anyone who has had their loan sold on from Tesco to Lloyds (or any other lender) is to relax and think of it as a compliment.
Your loan, along with the others sold, is seen as a valuable asset. Meaning, in their assessment, you are likely to keep paying your loan and your property is good security for the debt. Neither of which are bad things.
It is also well worth bearing in mind, this is mortgages not politics, there are actual rules people play by. Lloyds will be bound by the conditions of your contract through any product period.
So, if you are three years into a five-year fixed rate, your rate won’t change. This is protected under contract law and while not absolute, common sense would dictate that Lloyds would not want to turn off any new customers they have just gone to great lengths to acquire.
One note of caution would be that when your deal comes to an end, the reversion rate you expected to go on may change. That said, any sensible mortgage customer will be looking at arranging their new deal around six months out from their current one expiring and this should be no different.
We conduct annual reviews with our clients for this reason, to reassure them and explain the process even if the product is not up for a few years. In this instance, Lloyds’ retention policy does look to be better than Tesco, so while every little helps, I would view this as a positive switch for anyone affected.
If our clients’ mortgage is sold to another firm, they will undoubtedly have lots of questions about how this affects them.
It could come as a shock, and not knowing the impact could, understandably, cause some panic. Tesco have said they will be writing to their clients to outline what the switch will mean, but clients may still feel in the dark about their long-term borrowing prospects.
We feel it’s worth reassuring clients that the terms of their original mortgage contract cannot be changed. For example, their fixed rate will stay the same, or their tracker will have the same margin above the Bank of England Base Rate, until that product was originally due to expire.
However, at the end of their initial rate, there’s no guarantee that the provider can offer them a new deal and, according to the Financial Conduct Authority’s (FCA) market study, not switching from a standard variable rate means missing out on average savings £1,000 per year, during the introductory rate period.
This is an opportunity for advisers to show the value of their advice and demonstrate support for clients throughout their mortgage journey.
Proactively contacting affected borrowers, answering their questions and developing a plan to ensure the best chance of getting a good deal when the product expires, will help to build long-term relationships and loyal clients.
With Tesco loans being sold to an active lender such as Lloyds, we think it likely that a new deal will be available when the initial rate expires.
I generally remind customers that all residential mortgage contracts are regulated by the FCA and they are covered by the Financial Ombudsman Service (FOS) and the agreements they sign are covered under UK law and financial regulation, the main concern is if the lender goes under or if their debt gets sold to a third party.
However, if this happens they have still entered in to a contract and during their ‘deal period’ nothing can change only the name that the direct debit gets paid to.
The other concern is what happens after the deal comes to an end? That is easily addressed; we will remortgage to a new lender – in most cases this is easily achievable.
The advice that I would give would depend on the situation of the client and what the purchasing bank has outlined will happen.
If they are saying that they are going to put interest rates up I would be looking to remortgage my client to a new lender to a more favourable rate of interest, although in the current Tesco situation I can imagine that Lloyds would alter the standard variable rate (SVR) that Tesco were charging as it is higher than their own.
Although I haven’t had any client come to me specifically with Tesco mortgages, I don’t think that would alter the advice of see what is being offered and not to panic, at the end of the day Lloyds is a large UK bank regulated by the FCA.