16:21 PM, 23rd January 2012, About 13 years ago 36
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Ever since I got into this business I have avoided SVR (Standard Variable Rate) mortgages or discounted/fixed rate mortgage products that revert to an SVR like the plague. Now I’m not talking about bank base rate trackers or LIBOR rates, they are fine. I prefer bank base rate trackers myself but that’s another story and I’m rambling now so I will move on.
The SVRs that make the hairs on the back of my neck stand up are those which lenders will tell you they set based on “market forces”. The lenders will have you believe they will always be competitive in their pricing on the basis that it would affect their market share if they weren’t.
But what if they wanted to get out of a certain market? Where’s their incentive to price competitively then? What if you couldn’t refinance at that point, say because your earnings or credit status had changed or your property had fallen in value?
What levels of rates do you think the likes of Mortgage Express, Irish Permanent, GMAC or Capital Homeloans would be charging today if they were not contractually tied into providing your mortgage at bank base rate or LIBOR plus a fixed margin of X?
I’ve decided to write about this as I want to remortgage one of my properties to do another deal. My instructions to my broker was that I wanted the best fixed or discounted rate which reverts to a bank base rate tracker. The response was, “the majority of lenders currently revert to SVR based products, there are lenders which will lend to portfolio landlords, but based on your current exposure levels to them, there are no suitable options“.
So my choice is, accept an SVR reversion rate or do nothing. I could go commercial but that would entail committing to a capital repayment mortgage and that would mess up my cashflow. If I was a newbie, amateur landlord there would be a few products available to me but I’m not. I’m an established priofessional landlord.
The mind boggles!
It makes me realise that the banking world is still as barmy as it ever was! Why would lenders make more products available to newbies over and above those available to a portfolio landlord?
This is turning into a bit of a rant isn’t it?
Oh well, in for a penny and all that …….
To finish my story about refinancing before I move on, the bottom line is I’ll not be doing it and I will miss out on doing another deal for now. That’s how strongly I feel about this.
Of course, if you trust bankers there’s no problem is there? Your mortgage lenders would never increase your standard variable mortgage rate at a point where it is impossible for you to refinance would they?
Well I know different!
I know a chap who refinanced his own home with Bank of Scotland to pay out a divorce settlement about five years ago. Since then his financial position has changed and his house has fallen in value. He remortgaged to the max at the time so he now has very little equity. Even if just one of these two things had occurred he wouldn’t have been able to refinance today. Issue one being income based criteria, issue two being that he couldn’t get the LTV (Loan To Value) he needed.
His mortgage started out as a discounted base rate tracker for the first couple of years and when base rates fell sharply he was laughing all the way to the bank. However, his mortgage has now reverted to the contracted SVR and he’s paying nearly 5%. If at the time of remortgaging with this very same lender he had chosen their lifetime base rate tracker he’d be paying less than 2% now. The banks publicised SVR rate for new borrowers is also substantially lower than he’s paying so what’s the banks justification for charging him more do you think?
Thank banks answer – RISK!
Plain and simple. He can’t argue that can he? He can’t refinance because his LTV is higher than when he took the mortgage and his income is lower. Of course it’s a greater risk now, however, if he’d have elected for the lifetime base rate tracker deal at the time of remortgaging he’d still be on that rate and the risk to the bank would be no different.
So you have been warned, avoid mortgage deals that revert to SVR (Standard Variable Rate) like the plague, unless of course you can absolutely guarantee that your personal circumstances, financial circumstances and the value of your property will never deteriorate. And even if you could guarantee that, which of course you can’t, that will still leave you having to trust bankers.
By the way, this isn’t a new method of profiteering the banks have just discovered. They were stitching people up on SVR’s when I got into this business in 1989 and probably well before that.
RANT OVER!
Your thoughts please?
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Rob
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Sign Up19:05 PM, 23rd January 2012, About 13 years ago
It puzzles me also why 1st time landlords with zero experience get better deals than experienced portfolio landlords with 10+ years experience. Shorly the 1st time landlord should pose more of a risk than someone with 10+ years experience,but the lenders seem to think the opposite!
Mark Alexander - Founder of Property118
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Sign Up19:22 PM, 23rd January 2012, About 13 years ago
It puzzles me too Rob, why doesn't track record count for anything? I wonder how many other brains have been boggled by this and whether there is anybody out there who can offer a sensible explanation???
Jonathan Clarke
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Sign Up22:19 PM, 23rd January 2012, About 13 years ago
Yes Mark I dislike SVR`s as well. I must admit in the early days I paid scant attention to the reversion rate but began to realise its importance when my first fixed rate deals started coming to an end. I much prefer links to BBR so you know exactly where you are and bless BM with their BBR + 1.95% reversion rate. Got several of those. One mortgage company ( i forget which) called it the PVR ( product variable rate) which is much the same. We have no control over the SVR but I guess if it got too much out adversely out of synch with the BBR then the OFT might have something possibly to say about it being an unfair contract. Is that within there remit?
Jonathan Clarke
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Sign Up22:31 PM, 23rd January 2012, About 13 years ago
I reckon it might be more as a loss leader to newbies to draw them in and become a customer for life. Or they reckon a portfolio landlord will stomach a higher rate as they have better cash reserves. Or they see portfolio holders carrying so much debt that they fear you are more of a risk. With some of the big names that have gone under they may be running scared especially if you many with them. Look at BM. Was 12 you could have i think but now down to 3. They may have looked at the repo patterns and seen evidence to suggest the bigger they come the harder they fall.
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Sign Up22:36 PM, 23rd January 2012, About 13 years ago
Totally agree about SVR mortgages, our broker did not like us going for a lifetime tracker as he is unlikely to get a remortgage out of us!
We went with the Woolwich, but I recall there was another bank (maybe
HSBC but sorry can’t recall) that only dealt directly and you also had to have
£50K investments with them at the time you took out the mortgage, so they did
not get listed in most tables or broker systems.
Newbie, amateur landlord tend to have enough none property income that the bank have something to full back on if the property/rental markets goes bad – e.g lending to me does not expose them to as much property risk as lending to you.
The property side is more likely to go wrong when they lend to me, but an attachment of earning would most likely get their money back in the long term from me unlike a landlord with lots of properties.
Mark Alexander - Founder of Property118
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Sign Up22:40 PM, 23rd January 2012, About 13 years ago
It would be in the OFT's remit but how bothered would they be. remember, buy to let is not consumer finance and therefore borrowers are likely to get far less sympathy for naming a poor commercial decision. If the OFT were to pick this up I suspect it would only be in the most extreme situations. If there was a justifiable reason for increasing the rate, and I'm sure lenders could easily invent one just by saying they are pricing a certain way based on risk profile and their intention to reduce Market share, I suspect the OFT would be extremely reluctant to pick a fight with them.
Mark Alexander - Founder of Property118
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Sign Up22:53 PM, 23rd January 2012, About 13 years ago
I agree that the chances of recovery are better if a deal goes wrong with a small landlord but the flip side of that is that if the portfolio landlord has a good track record and the lenders have faith in the ability of their underwrites they should be far less likely to ever need to resort to recovery on the basis that the property deals are far less likely to go wrong in the first place.
Seems we are all equally perplexed by this part of the debate and so far unanimous in our mistrust of SVR's
Looking forward to hearing plenty more views on this.
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Sign Up23:21 PM, 23rd January 2012, About 13 years ago
I wouldn't trust any mortgage company which is why I would go for a guaranteed tracker rate when the initial mortgage deal ended.
Which bizarrely and more through luck than judgement I ended up with Mortgage Express at 2% above base for the next 20years.
Here's hoping interest rates remain at 0.5% for that period!!!!!!!!!!!!!!!!!!!!!!?
Hopefully by then the negative equity will have disappeared but I wouldn't bet on it.
I think we will be like Japan; a lost couple of decades; which should mean extremely low interest rates!
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Sign Up12:26 PM, 24th January 2012, About 13 years ago
What's the problem with SVR's .... especially as they are so low that they are laughable?
The low expense (mortgage payment) and rising rents (income) help to maximise profits.
The large exposure you have Mark is too much for today's BTL lenders (and I talk as a 20 year mortgage broker, so have some past and current experience!) but there are certaily options for you with 'private' banks and I would be happy to be your Broker to discuss further. 🙂
To Ian Ringrose - any Broker worth his salt will not be unhappy that you chose a lifetime tracker even though "our broker did not like us going for a lifetime tracker as he is unlikely to get a remortgage out of us". This is because a professional adviser would wish to maintain a relationship to provide the BTL GI, reviews on your own personal mortgage and protection arrangements etc etc
Mark Alexander - Founder of Property118
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Sign Up17:14 PM, 24th January 2012, About 13 years ago
Please get in touch if you think you can help - my email address is mark@property118.com