Skipton Building Society has this morning made an “unprecedented move” in the mortgage market, offering rates for existing borrowers switching products starting at 3.35% fixed for two years at 60% loan-to-value, with a 5% product fee.
The higher fee is to help bring down the monthly payment and help those who may face financial difficulty when remortgaging, deferring some of the cost. The Skipton said: “The new 2 year fixed range is only available for rate switches and features 60-90% LTV products with a 5% completion fee, which can be paid up front or added to the loan. In return, customers will benefit from lower interest rates than our standard on-sale range offers.”
Brokers were mixed in their response to the product, saying this is an innovative move by the lender, and could be a lifeline for its borrowers, but questioned whether the fee is justifiable – and urged borrowers to seek advice.
Justin Moy, managing director at EHF Mortgages, commented: “This is an unprecedented move for residential mortgages, assisting those Skipton borrowers who need help with the monthly payments, and deferring costs through a larger fee added to the mortgage. This is a similar strategy to buy-to-let lenders who have been using higher fees to bring mortgage rates lower, and make mortgages more affordable as a result. This concept from Skipton for residential mortgages will interest other lenders, and will have borrowers seriously considering it, too. As ever, people should take professional advice and need to understand the effect of the fee on the mortgage.”
Rhys Schofield, brand director at Peak Mortgages and Protection, also urged borrowers to be wary: “Is it really 3.35%? With a 5% fee, in essence clients are actually paying 5.85% and may well be better off taking a ‘higher rate’ with less fees. It probably has its place but whether it’s a good idea or not is definitely something to talk to an adviser about. Borrower beware.”
Stephen Perkins, managing director at Yellow Brick Mortgages, agreed the move is innovative but urged borrowers to weight up the numbers: “This is a very innovative move by Skipton to effectively allow their existing clients to capitalise some of their interest in exchange for lower monthly payments, which will also increase their client retention and reduce risk of arrears. However, borrowers need to weigh up the overall cost of the product against their personal priorities.”
Peter Stamford, director at Moor Mortgages, shared much the same view: “Skipton’s new offering is an interesting idea and certainly won’t be right for everyone. However it does give us a unique tool to help clients trim their budgets. Now’s the time for smart mortgage advice, and I’m eager to see more lenders step up with new solutions. The future of mortgages is about innovation.”
Like Schofield, Darryl Dhoffer, director at Bedford-based The Mortgage Expert, also urged caution: “Skipton comes out of the blocks early this week, setting out their stall for existing clients with residential mortgages whose low fixed rates are coming to an end. However, slapping them with a whopping 5% fee on sub-4% deals doesn’t sit well with me, and it’s essential people take advice. This could be a case of kicking the can down the road.”
Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, said hats off to Skipton: “The 5% fee is steep, there’s no getting around that, but it is allowing Skipton to deliver a mortgage at around 3.5%, so less than the market norm currently of circa 5.5%. For a customer coming off a deal at 1% or 2%, the monthly payment is going to be their key concern, so paying a larger fee by way of adding it to the mortgage debt could be the right way forward and stop them struggling and potentially falling into arrears.
“It is in no way an ideal solution, but if it allows people to maintain their mortgage repayments, not fall into arrears and not have the stress and worry, then at least it is a solution. Hats off to Skipton for thinking outside of the box, again, and challenging the market to look at their propositions and how they can help their customers at a challenging time for many. I for one am looking forward to seeing what other gauntlets Skipton will be throwing down to lenders.”
Gary Bush, financial adviser at MortgageShop.com concluded: “This kind of out-of-the-box thinking is needed by other lenders to help maintain the UK’s mortgage market.”
