Lloyds Banking Group announced yesterday that from 1 June Lloyds TSB, Lloyds TSB Scotland and Cheltenham & Gloucester will abandon their current SVR structure of a guaranteed lifetime cap at Bank Rate + 2%, in favour of a new managed revert rate with no guarantees on all new mortgages, including product transfers. The Homeowner Variable Rate is initially set at 3.99%.
Boulger says the new revert rate would impact most on borrowers with a high LTV, hitting first time buyers hardest.
This is because the revert rate at the end of the fixed term at 3.99% will be higher than the current SVR, on the understanding that base rates remain lower than 2%.
He said: “As the shortest initial period for the initial rates on any of the Lloyds TSB or Cheltenham & Gloucester mortgages is 2-years no borrower will pay this new 3.99% SVR for at least 2 years, which also means that the rate is completely academic for the next 2 years, although of course a rate has to be quoted in Key Facts Illustrations, and Lloyds Banking Group is clearly indicating where they would set the rate in today’s market conditions.
“Lloyds TSB and C&G have also advised that from 1 June they will reduce the rates on most products if taken out on a repayment basis by around 0.1%, but will increase them by 0.1% for interest only mortgages as they are copying Halifax and some other lenders by introducing a 0.2% premium for interest only.
“This policy change on SVR exactly mirrors what Nationwide did a year ago, even to the extent of the new rate being set at the same level of 3.99%.
"Nationwide had exactly the same problem as Lloyds TSB in having a contractual commitment in their mortgage offers that its SVR would not exceed 2% above Bank Rate.
"There was no way out of this commitment and so the only solution for it was to introduce a new SVR for new mortgages."
Existing borrowers will not be affected unless they switch to new deal by doing a product transfer.
And Boulger says borrowers who want to opt out of a lifetime tracker capped at 2% above Bank Base Rate with no early repayment changes would be "mad" to do so.
And he adds: "However, if they want to consider switching to a fixed rate they will need to take into account that they are permanently giving up this very good long term capped tracker rate. This is particularly relevant for anyone with less than 25% equity in their property."
In the Lloyds Banking Group press release issued yesterday the document included a comparison table purporting to show the reversionary rates of the other major lenders.
Boulger says: "I am always very cynical of comparison tables produced by lenders and this table fully justifies that cynicism on two counts. The table leaves out the 3.5% reversionary rate of the largest lender (Halifax) and the Barclays/Woolwich reversionary rate is actually 2.49% (Bank Rate + 1.99%), not the 4.99% conveniently used in the table. Whilst 4.99% is Woolwich’s SVR this is now only used for further advances and the flexible element of its Open Plan mortgages and the Lloyds press release specifically refers to reversionary rates.
“If one recalculates the average reversionary rate of the top eight lenders, substituting the correct rate for Woolwich and including the Halifax rate, the average comes out at 3.99%! As a result the claim in the last paragraph of the press release that the new 3.99% rate is below the average of other major lenders is inaccurate, although it would of course be fair to say it is in line with the average of other rates.
“I can completely understand the commercial pressures that have pushed Lloyds Banking Group down this road but it does remove one of Lloyds TSB's USPs and means that new customers will get a less good deal, particularly those on a relatively high loan to value taking a 2-year deal.”
