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Will high-street giants follow Skipton’s SVR move?

Skipton Building Society has cut its revert-to rate by 0.5 per cent but brokers are divided about whether other mortgage lenders will follow suit.

Brokers were surprised last week when Skipton cut the revert-to rate, more commonly known as a standard variable rate.

The change from Skipton, which comes into effect on 1 October, brings its SVR to 4.99 per cent, down from 5.49 per cent.

In a similar move, Precise Mortgages last week reduced its reversion rate for its almost-prime range of products by 0.53 per cent from 5.52 per cent to 4.99 per cent.

Data from comparison site Moneyfacts.co.uk shows SVRs have barely moved in the past two years with an average rate of 4.86 per cent in September 2012 compared with an average of 4.87 per cent at 4 September. Over that two-year period, the highest level seen in average SVRs was 4.89 per cent in March.

Trinity Financial product and communications manager Aaron Strutt says: “Not a lot of lenders have touched their SVRs in recent times but Skipton may think this move brings it closer in line with its competitors.

“An SVR of 5.49 per cent is above the market average, as is the reduced rate of 4.99 per cent but it is still a significant reduction.”

Middleton Finance managing director Daniel Bailey says: “The move from Skipton took me by surprise. Of course, we had some lenders increasing their SVRs a couple of years ago and in the meantime no one else has really decreased theirs.

“It could be a marketing ploy to grab some headlines but either way it does help borrowers and is certainly a positive move.”

Brokers argue that reducing reversion rates will ultimately help borrowers affected by tightened affordability criteria and heightened stress-test requirements introduced by the Bank of England this year.

By reducing the SVR, lenders ultimately are reducing also the rate against which borrowers are stress-tested, helping more people gain access to mortgage finance.

Start Financial Services manager Tom Cleary says: “This may have been driven by the Bank of England changes to stress-testing. Skipton has probably put all the numbers through its systems and realised it wasn’t going to lend enough at that level of SVR and made the decision to cut it.

“With the Council of Mortgage Lenders’ prediction that lending is going to be very strong in the second half of the year, Skipton may have felt it was going to lose out on market share.”

Bailey adds: “I agree that the Bank of England’s changes have probably influenced this decision because reducing SVRs helps enhance affordability for borrowers.”

Cleary and Bailey are divided about whether rival lenders will follow suit to attract more business volumes.

Bailey says: “We will see more innovative ways of lenders attracting business, with rates as low as they are now. Dropping rates is a very blunt tool but by decreasing fees – as we’ve seen certain lenders like Virgin Money doing – and reducing SVRs, lenders can drive volume.

“It could be a ploy to boost business that others follow and the next two to three months will lay that bare.”

However, Cleary does not expect the bigger high-street lenders to cut SVRs. 

He says: “It may be something that the smaller regional lenders look to do but I don’t think we’ll see many of the big lenders dropping their SVRs.  

“There are a lot of different tools that lenders can use to attract business but I don’t think SVR reductions will be widely used.

“We’re more likely to see competition on fees and areas like that but we’ll see in the coming months if others follow Skipton. 

“I don’t think they will but there is space for rates to come down even further before lenders resort to dropping SVRs.”

Barclays, HSBC, Nationwide and Santander say they have no plans to reduce SVRs.

In May this year, CML data showed more than two-thirds – 67 per cent – of outstanding mortgage balances were held by customers on SVRs in the second quarter of 2014.

Due to the tighter affordability criteria introduced by the Mortgage Market Review, many of those customers are unable to remortgage onto a lower rate despite transitional rules designed specifically to avoid trapping mortgage borrowers on higher SVRs when their fixed terms end.

FCA mortgage and mutual sector manager Lynda Blackwell said in May she was “disappointed” that lenders were not using the transitional rules “in the spirit intended”.

Your Mortgage Decisions director Dominik Lipnicki says: “We must avoid the situation where borrowers are stuck on SVRs and that was the thinking behind the FCA including the transitional rules in the MMR.

“If a borrower moves from a 2 per cent fixed rate straight to an SVR, it is a potentially crippling jump in payments. 

“Either SVRs should come down or the FCA really needs to make sure people are given access to the right products when they come to the end of their fixed term.”

Mortgages

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