Time for equal rights for existing customers

In terms of statements which could be followed by, ‘Tell us something we don’t know’, the above one is up there with ‘President Trump lost the US election’ and ‘Dominic Cummings is a rather divisive figure’.

Indeed, this one is right up there with questions about what bears do in the woods and what religion the Pope is. In other words, we know, we get it – existing customers tend to be quite far down the list of priorities for lenders/providers and recent cases we’ve dealt with show this still to be a truism.

We are working with an existing customer of a mainstream lender who wants to move, has 10% equity in their property, and is looking for product options which would allow them to do this. After all, who knows them better than the existing lender? Who knows they’ve not missed a mortgage payment? Who knows they’ve not applied for a payment deferral during the pandemic? Who knows that (ordinarily) they should be considered an excellent risk for a lender that has them on their books already?

Unfortunately, that’s not the way the market works at the moment – their existing lender effectively has no 90% mortgage options available to them, and while other lenders might have high LTV products for first-time buyers, they clearly do not qualify for these. It’s a disparity that seems incredibly odd – that borrowers with no history of paying a mortgage are deemed less risky than those who do, even though they have the same amount of equity/deposit.

But, this is the situation for many existing customers. Effectively they cannot move because the remortgage options for them at 90% elsewhere are not just pretty slim, almost non-existent and, where available, much more expensive than they really should be. Which leads us onto the next client.

This is a client who bought a couple of years ago at 90% LTV. Having paid that mortgage regularly, and with a slight uptick in the capital value of their property, they are looking at an 85% LTV mortgage product with their existing lender. Now, in this case, yes they can offer a mortgage product to fit their needs – the one slight fly in the ointment is that it’s going to cost them 1% more than they have been paying for their 90% LTV loan.

So, with more equity, with greater customer knowledge, again with no payments missed or mortgage payment deferrals on their record, they will have to pay considerably more each month than they currently pay, despite them plainly being less of a risk to that lender, and despite the cost of funds required to offer that mortgage not having moved at all in the intervening period.

It may seem like a strong statement, but many mortgage customers are being fleeced in this current market, and the vast majority of those being treated in such a way are those who require higher LTVs, or what we now say are higher LTV products, namely 85% LTV and above.

Now, we fully understand the argument that will be used here. It will be around higher LTV being higher risk, but if that’s the case why are you prepared to offer loans at higher levels to new customers – especially those who have never bought a property before – but you won’t extend the same courtesy to existing ones?

We need to slow down business at this level to ensure we meet our responsible lending measures is another common refrain from lenders – then why offer higher LTV mortgages at all, and why charge much, much higher rates for the privilege? No-one can truly say with a straight face that a customer at 90% LTV is twice as risky as one at 85% LTV, can they?

The irony is of course that at lower LTVs the market is perhaps as competitive as its ever been. It’s also why the popularity of the Bank of Mum & Dad continues to grow for first-timers because the price differential between 85% and 90% LTV is huge. That extra 5% is a 1% difference in rates, whereas those who are down at 50/60% are paying rates that wouldn’t have been dreamed about just a few years ago, and on five-year, not just two-year deals as well.

There, to quote a favoured political phrase at the moment, definitely needs to be a levelling up here. Existing customers surely have many things going for them, and to have some lenders treating them as somehow a ‘worse risk’ than new customers at higher LTVs is beyond a joke. Not offering existing customers competitive deals to allow them to do the things they want, like move, seems immoral; and charging existing customers significantly more looks like pure profiteering.

Those that are pursuing this approach need to reconsider where they have left their standards because, when it comes to responsible lending, for some existing customers nothing could be further from the truth.