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Small lenders more likely to pass on rate falls
24 August 2010
Smaller lenders are more likely to pass on the fall in swap rates than the bigger lenders, according to advisers. UK swap rates have fallen in the last three days by 0.1-0.3 per cent, data from online data website Swap Rates has shown. David Sheppard, IFA and managing director of Perception Finance, said smaller lenders were more likely to pass the fall in the cost of lending to customers. He said: "Swap rates have dropped but lenders, particularly the bigger ones, often borrow money in tranches, therefore the rate drop may not feed through at all. "Reductions in swap rates should feed through and in theory fixed-rates should decrease but it depends on the lender’s margins. "If a lender has lots of money left on an existing product, then those borrowers may not see rates drop at all." Small lenders could release more competitive rates as these lenders don’t buy as much money so they may be able to offer new deals at low rates, said Mr Sheppard. He said: "Small building societies used to come out with good rates but now there are far less of them then there used to be. They want to limit exposure on their rates now. "The Hanley Economic Building Society is doing some good rates but they are exclusive in certain networks so they can make it last a lot longer. "They don’t have as much money as the Halifaxes of this world as they buy a small amount which is cheaper for them as they are buying less." Vic Jannels, chairman at All Types of Mortgages, agreed. He said "The bigger boys want market share and only the good borrowers will pass their criteria so from their perspective it really is a case of take it or leave it. "This is not reasonable at all and these lenders should be offering their borrowers the best deal around and passing on rates but they are not, despite having fantastic margins." Mr Sheppard said: "A good two-year fixed rate would currently be around 3.5 to 3.75 per cent." On Monday Accord launched a two-year fixed-rate deal at 75 per cent loan to value at 2.99 per cent. Mr Sheppard said: "The Accord deal is a very good one - it has a good rate and a good fee. It will certainly attract interest so I hope they have the money to make it last otherwise it will be gone by next week." Published by FTAdviser
