Skipton Building Society’s announcement on Monday that it is offering rates for existing borrowers switching products starting at 3.35% fixed for two years with a 5% product fee, has attracted a lot of criticism on social media, with some going so far as to brand the lender a loan shark and being “the mortgage lending equivalent of Wonga.com”.
But brokers have come out to defend Skipton in numbers, saying the product is certainly not for everyone but is in no way misleading and, for some borrowers, could be the difference between losing and keeping their home.
Craig Fish, director at Lodestone Mortgages & Protection, said: “Yes, this product isn’t for everyone, in fact it’s probably for very few, but for those few it could be a lifeline.
“Some of the criticism it has attracted from people who are not qualified is totally unwarranted and frankly naive.
“Skipton is an innovative lender that is genuinely trying to change mortgage products for the better.”
Justin Moy, managing director at EHF Mortgages, agreed: “This isn’t right for most borrowers absolutely, but for the small number for whom it helps save their family and home, this might be the best news they have had all year.
“It could be the difference between keeping your home and having to sell at a time when the market is in freefall.”
In a hypothetical example worked up on a £300,000 mortgage, Moy showed that the monthly saving could be £583.
Jack Tutton, director at fareham-based SJ Mortgages, accepted that this level of fee on owner-occupier mortgages was not common but said the product should not be ruled out.
He said: “Such a high arrangement fee in the owner-occupier market is uncommon, but it does allow Skipton to reduce the rate of interest that’s charged.
“Given that this could reduce what their customers have to pay monthly in the short term compared to a lot of other products, you can see what Skipton is trying to achieve with this new product.
“I personally don’t feel that this brands them as a loan shark, providing that the product achieves the customer’s priorities and means that they can keep their home by having the lower monthly payment associated with the lower rate of interest.
“I would say, however, that clients should get advised about products such as this, ensuring that it is the most suitable solution for their circumstances and that they are aware of the impacts of such a high fee.”
Peter Stamford, director at Moor Mortgages, said: “There are a few instances where this product will seriously help people keep their house.
“It’s obviously not a long-term solution but we need every weapon at our disposal currently.”
Meanwhile, Gary Bush, financial adviser at Potters Bar-based MortgageShop.com, said this sort of content should not be allowed online.
He said: “It’s a dangerous world we live in when people on social media can give unqualified, inexperienced, unlicenced financial advice in the UK on the products of UK-licenced lenders.
“Any mainstream lender releasing any innovative products at a time of mortgage crisis is very much needed.
“It’s good that the Financial Conduct Authority has grown its teeth for dealing with such incidents.
“UK social media should not be the wild west and the sooner people realise this with financial products, the better.”
Kylie-Ann Gatecliffe, director at KAG Financial, agreed: “Are these products for everyone? Absolutely not. But that’s down to the adviser once they have understood the client’s circumstances.
“As an adviser, it is frustrating to see people with zero qualifications in this area giving sweeping statements on social media, especially at a time when clients need advice from qualified advisors more than ever.
“Skipton are a fantastic lender and are about as far away from a loan shark as you could possibly get.”
Stephen Perkins, managing director at Yellow Brick Mortgages, added: “The Skipton are certainly not loan sharks and comparing them to Wonga who charged over 1000% APR is naive at best.
“The product has a place and provides options for some for whom the monthly budget now is more important than the overall cost or long-term scenario.
“Is it an amazing product? No, but varied options to help more individuals with their circumstances are welcome.”
Darryl Dhoffer, director at The Mortgage Expert, said “comparing this product with loan sharks is just wrong and completely short-sighted.”
However, Graham Cox, founder at the Self Employed Mortgage Hub, said: “I have some sympathy for some of the criticism of this product, at least for anyone taking out the 90% LTV deal with the 5% fee added to the loan.
“The much lower mortgage rate is highly seductive but in two years time, if house prices have continued falling, you could easily find yourself in negative equity.
“At that point, you wouldn’t be able to remortgage, so if you can’t afford Skipton’s SVR, you’d have to sell.
“Assuming you can make up the shortfall between the mortgage and sale price, of course, otherwise you’re looking at repossession.”
Steven Morris, advising director at Bristol-based Advantage Financial Solutions, said that what Skipton did was nothing new, adding: “Buy-to-let lenders have been loading fees so that they are able to charge lower rates for years and this has become more common in the last year due to the higher interest rate environment we are now in.
“This is nothing new. Skipton are trying to find a way for people to afford their monthly payments via lower interest rates, but they have to recoup that cost somehow, hence the fee model.
“Clients interested in this need to box a bit clever though. If you take a 5-year fix with a 5% arrangement fee, you are effectively loading the interest rate by 1% for every year of the fix.
“Whereas for a 2-year fix you are loading it by 2.5% per year of the fix, which makes the fee cost per year far, far higher than the 5-year fix.”
Anil Mistry, director at RNR Mortgage Solutions, concluded: “I must respectfully challenge the criticism levelled at this product because a competent broker, when fulfilling their role effectively, will meticulously assess whether the proposed product aligns with the client’s financial needs and circumstances when compared to other products in the mortgage market they are eligible for.
“In situations where a particular client’s financial situation is a match for this product, it would indeed be the appropriate choice.
“Consequently, Skipton, in this context, has acted entirely within the bounds of responsible conduct.”
