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Lenders in a fix on remortgages

Market conditions have led to an increasing number of borrowers opting to move on to their lender’s standard variable rate rather than remortgage elsewhere.

Once this would have been seen as good news for lenders, mortgage commentators warn in the current climate this could mean some lenders are stuck with large amounts of business they cannot handle.

Hamptons managing director Jonathan Cornell believes if remortgage rates move above SVRs in the near future then many lenders could be caught in this position. Speaking last week at the first of a series of Money Marketing round tables, Cornell said a lot of lenders which offered extremely competitive fixed-rate deals two years ago will not have the funds to cope if these custom-ers opt to stay on their SVRs after their fixed deals expire.

Nationwide currently has two tracker deals priced above its SVR. Its two-year tracker for a 95 per cent loan to value is priced at 7 per cent for pur-chases and 7.1 per cent for remortgages. Its SVR is relatively low compared with most lenders, at 6.74 per cent.

Cornell said: “There will come a time when remort-gage rates will be above SVR, so why is someone going to remortgage away?

“That will cause horren-dous problems for lenders, as those who were offering these fantastically juicy new rates are not expecting people to reach SVR. These lenders are expecting brokers to remortgage them away. They do not necessarily have the funds to allow these people to hit their SVRs.”

John Charcol senior technical manager Ray Boulger says lenders have been finding more people are staying on their SVRs than before. “This trend is likely to increase if product rates keep going up,” he says.

The market is already seeing lenders’ place arrangement fees on their SVRs as they look to deter borrowers from applying for these rates.

Skipton Building Society has recently placed a £799 arrangement fee on its 6.7 per cent SVR while Stafford-shire Railway Building Society has been forced to ban applications from brokers for its SVR, which is priced at a very competitive 5.99 per cent.

Last week, Woolwich placed a 1 per cent arrange-ment fee on its buy-to-let SVR. A spokesman for the lender says it made this move in a bid to encourage borrowers to take a more long-term approach to product selection.

The spokesman says: “It is much better practice for us if a borrower is put on a rate which is more suitable for them from the start.”

Woolwich says it has no plans to place an arrange-ment fee on its residential SVR but does not rule out such a move in the future. “If we did do this, then it would be a reaction to what is happening in the market,” says the spokesman.

John Charcol senior technical manager Ray Boulger agrees the rationale behind Woolwich’s decision is to deter borrowers from going on to its SVR as a short-term move.

He says: “Putting the fee in will basically stop people parking their buy-to-let mortgage on its SVR until they find a better rate. We have seen a few other lenders introduce fees on their SVRs too but Woolwich is the first one of the bigger lenders to do this.”

Boulger says he would not be surprised if other high-street lenders copy Woolwich’s move.

London & Country mortgage specialist Richard Morea says it has been a long time since the market has seen borrowers actually opting to go on to a lender’s SVR. He says: “SVR is usually avoided like the plague so it is a very strange situation at the moment. By putting fees on their SVRs, borrowers are more likely to think twice about whether they want to go on to these rates.”

But Morea believes that as many lenders’ SVRs are still above 7 per cent, there are many more competitive deals available in the market. “I think we are still a long way away from people languishing on SVRs with nowhere to go. It is unlikely that we will go back to that type of market place,” he says.

Wave director of distrib-ution and sales Mehrdad Yousefi believes only half a dozen or so lenders may face funding problems as a result of borrowers going on to their SVR rather than remortgaging away. He says: “I don’t think this will be a problem for the majority of lenders in the market.”

Homefunding chief executive Tony Ward says: “Any lender that has been relying on redemptions as part of its funding strategy has got everything coming to them. Of course, lenders consider it to an extent but it should never be relied on fully. I would like to think that it is not an industry issue.”

Boulger does not agree that lenders could face difficulties if borrowers stay on their SVRs.

He says: “From a lender’s perspective, with their SVR they have complete control. They can increase rates, which puts them in a stronger position. In addition, they can start putting conditions on their SVRs in order to avoid people using it as a short-term home.”


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Image courtesy of Stuart Miles at

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