16:21 PM, 23rd January 2012, About 12 years ago 36
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.
Your thoughts please?
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