Mortgage brokers have deemed an Irish lenders’ move to scrap its standard variable rate in favour of a ‘managed variable rate’ as essentially just a matter of semantics.
Yesterday (1 July), Permanent TSB Group Holdings announced it is ending SVR mortgage pricing for more than 70,000 homeloan customers upon request.
Customers on SVR mortgages of 4.5 per cent are expected to move to new interest rates from as little as 3.7 per cent on a ‘managed variable rate’, with those on fixed rates able to move to an MVR mortgage as one of their options at the maturity of their fixed rate.
Peter Gettins, product manager at London and Country Mortgages, told FTAdviser that there is a degree of semantics involved - instead of having one single managed rate they are moving to multiple managed rates - but these are still managed rates set at the lender’s discretion.
He said: “Arguably it opens the door to further variance in the future - applying greater rises or cuts to some borrowers than others.
“It is a rate cut for all borrowers, so that has to be welcomed, though human nature being what it is, some on the higher rates may feel a little hard done by.”
He also pointed out that borrowers will have to be proactive about switching, rather than it happening automatically, and would then need to keep an eye on their rate and loan-to-value to ensure they do not drift into paying too much.
Jeni Browne, head of residential and buy-to-let lending at Mortgages for Business, said that essentially all they are doing is offering a new rate to existing borrowers, albeit at a lower rate than the current SVR.
She said: “The concept of rate banding for different loan to values on reversion rates already happens with some institutions in the UK and arguably this makes good commercial sense – if the borrower were to lock into a new deal, the pricing of this would be affected by the LTV so why not apply this to clients going onto the reversion rate too?
“However, I can’t see many lenders doing this soon, especially whilst retention products are so competitive.”
Ray Boulger, senior technical manager at John Charcoal, agreed that the SVR is essentially just another managed rate and suggested that this is likely to be a fairly niche situation that will not catch on in the UK.
He said: “Most UK lenders won’t have a big back book of long-term discount deals, the banks definitely won’t, although I suppose it might catch on with some building societies.”
Lenders such as Skipton and the Woolwich have moved to having a reversionary rate linked to the base rate, with their SVR remaining for historic borrowers and new business products reverting to a tracker rate, according to London and Country Mortgages’ Mr Gettins.
He said: “Since it’s tied to the product that tracker margin can vary with product, for example most current Woolwich deals revert to 3.49 per cent above base, whereas back in 2010 it was 2.49 per cent above.”
Post credit crunch several lenders introduced different variable rates for new business, with Mr Gettins mentioning Nationwide committing to having an SVR never be more than 2 per cent greater than the base rate, meaning that in 2009 with the Bank of England at 0.5 per cent they introduced a new ‘standard mortgage rate’ at 3.99 per cent.
The Irish lender is not to be confused with challenger bank TSB, which also announced today that it is cutting rates for customers coming to the end of their fixed term mortgage deal or who are already on its SVR or homeowner variable rate.
Those currently on the SVR at 2.5 per cent could save up to 0.4 per cent by moving onto TSB’s new mortgage offers, with rates starting from just 2.09 per cent.
Homeowners who took out a TSB mortgage after June 2010 may have recently moved onto TSB’s HVR (currently at 3.99 per cent) when their previous deal ended. Those with an outstanding loan of £200,000 could potentially save more than £2,300 a year by transferring their mortgage to a two year fix at 1.99 per cent.
peter.walker@ft.com
