One of the great unknowns about borrowers is the level of understanding they have about their current mortgage rate: what it might turn into when their deal ends, and what it would mean should they decide not to remortgage or be unable to. This makes Santander’s recent decision to get rid of its SVR in favour of a follow-on rate that tracks the Bank of England base rate very interesting.
Publicly, the decision is said to be based on borrowers’ lack of understanding about SVRs, with Santander suggesting people have more feeling for BBR. And, of course, the fact this FOR is almost 1 per cent lower than the lender’s SVR is to be welcomed.
Santander may have a point. Plus, if the rate is tracking BBR, borrowers will have certainty about when it will move.
That said, could borrowers that suffer from rate inertia actually be helped further here? Clearly, the lender will earn more from the borrower if they move on to an FOR or SVR, but does it really need to get that far?
Lenders will do all they can to product-transfer clients to other deals. However, if borrowers choose to do nothing, the lender actually earns more.
The need for advice is obvious. I would like to see all lenders direct their customers back to their original adviser (if there is one), and those advisers should be in constant contact to ensure their clients get the most suitable remortgage and do not have to move to a more costly SVR (or FOR).
Yet there will always be those who could remortgage but do not. There is an argument for the borrower not to be moved to an SVR but automatically transferred to the best ‘special deal’.
Lenders may say it is not their job to do this and it would cost them money, but we are seeing progress in the utilities market, for example, where providers are being ‘forced’ to move customers onto the best tariff.
Ideally, advice would be provided, the client would remortgage or product transfer and the job would be done. But the number of borrowers on SVRs shows that inertia is still rife. Proactive lenders in this area would fulfil TCF but perhaps not please the bean counters.
Richard Adams is managing director of Stonebridge Group