In a new regular column, Richard Stokes outlines numerous product developments as providers look to steal a march on the competition
Reductions in standard variable rates (SVRs) are flooding in following the first Bank of England Base Rate change since August 2004. Most lenders, I’m pleased to say, are passing on the full 0.25 per cent reduction. However, a SVR reduction has a lesser impact than it once did with disciplined re-broking after the initial benefit period expires.
Furthermore, the niche lenders have adopted rates that track the Base Rate or LIBOR within their new borrower ranges. There has also been a record bias towards recommending fixed rates in 2005 so brokers themselves have not needed to reach for their calculators to work out the effect of the drop.
Mainstream
Alliance & Leicester has remained at the top of the pack with its 4.24 per cent fixed for two years without extended early repayment charges, albeit funds are very low.
Northern Rock are champions of product design and innovation with the unrivalled ‘ Together Range’ and regular income lifetime mortgages. Its latest innovation – wait for it – is free remortgage conveyancing on selected products.
That’s right – it has succumbed to copying the rest of the market, probably because its ‘Help-with-Costs’ option falls into a category of its own and has not translated well into the sourcing systems.
Accord has moved into the self-build mortgage sector in the BuildLoan stable, becoming the first offset provider in this class. This appears to me to be a sensible combination as the drawdown facility can be used when needed to complete the soft refurbishment.
Bank of Ireland has opened up its parental-help product First Start to its Bristol & West distribution.
Self-cert
BM Solutions rocked the rest of this sector with its 4.85 per cent fixed for two years. In fact the leading pack clung tight above the psychological 5 per cent mark, leaving BM Solutions giving away more than it needed to. This week has seen realignment on both sides with a sprinkling of lenders offering the headline 4.99 per cent, including BM Solutions.
UCB Home Loans has expanded its product range, separating out its free valuation and reservation fee offering from the straight-rate option.
London Mortgage Company has increased its loan sizes following adjustments made by UCB last month. It has also improved its income multiples on status to up to four times single. This makes the 3.5 times income it offers on self-cert look tired.
Buy-to-let
Lenders are probably pleased with the collective way they have driven this market away from a two-year into a three-year arena in 2005. A new breed of three-year fixed products has help-ed instigate this shift with greater emphasis on achieving the lowest rental calculation facilitated by a high completion fee and low pay rate.
At the moment The Mortgage Works is holding the mantle at 4.69 per cent with a 1.5 per cent completion fee. This is a brave step as its appetite for new business in 2005 contrasts with the amount it serviced last year and it has not been without the inevitable growing pains.
For those of you who do not like products with high fees, the Leeds & Holbeck Building Society fee-free remortgage 5.15 per cent fixed for three years might be worth a look.
Free valuation, free remortgage conveyancing and no completion fee – Leeds & Holbeck is also among the small breed of lenders that take the word of the letting agent rather than insisting on the valuer confirming coverage. This is inevitably more favourable as it has a vested interest.
Adverse
The biggest question this market faces this year is who is going to lend to the increasing sector of ‘near prime’ borrowers? Unlike before, the building society branch managers have not been in a position to show underwriting discretion, being answerable to the online tick-box ‘progress’.
The question has been answered in a variety of ways:
Behind-the-scenes relaxation of credit score.
Cascading to an affiliation lender or sister brand.
Traditional adverse lenders introducing new lower risk bands with an emphasis on rate reduction.
The latter has been the most interesting, with loss of margin there has been a greater emphasis placed on reducing long-term operational costs to compete.
Platform has been the latest traditional adverse lender to offer an online proposition, ‘ClickDecision’, following the path laid by BM Solutions and GMAC-RFC. Packagers will be keeping a close eye on how this works out but ultimately the consumer will win whatever the outcome.
Other news
What else has been happening? Well, SPML has simplified its product offering but is still struggling to include its fixed rates on the same page as its reversionary ones.
Kensington Mortgages has made significant reductions in its core pricing as it was finding itself someway behind the market, and Preferred Mortgages has taken the bold step of removing its 90 per cent banding for near prime.
The above is not an extensive list but just an overview of the movements and interests in the marketplace this week.
Richard Stokes is product development manager at The Mortgage Times Group
