New Halifax retention prevention products

Posted on 26 June 2007 by Ray Boulger

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In their pre-close statement to the Stock Exchange a fortnight ago the only reason HBOS gave for their share of net mortgage lending in the first half of this year more than halving to 8% was the failure of their retention strategy.

It is not, of course, quite as simple as that. For example in January Cheltenham & Gloucester kept some very competitive 2 and 5 year rates out in the market long after the surprise Bank rate rise that month pushed the cost of funds sharply higher and other lenders increased the rates on their fixed rates. This meant C&G had a huge share of net lending in January (and a huge service problem for a long time afterwards) and nearly every lender, including HBOS, was well behind their 2007 lending targets after the first month of the year. Clearly HBOS never caught up.

On the other hand in February and March Halifax had a very competitive 2 year fixed rate available to retention customers and as a result in those months they retained a very high percentage of customers. Getting their retention strategy right is basically now very simple because the IT programmes around it are very good. All Halifax has to do is get the product pricing right and retention levels will be strong. The economics of getting the pricing right may be a big challenge, but that is equally true of all mainstream mortgage pricing in our extremely competitive market.

On Thursday of this week Halifax are launching some new products in their retention prevention range, this time for mortgages between £40,000 and £75,000. These are unlikely to make much progress towards the minimum 15% of net lending their Chief Executive “confidently” predicted they would reach in the second half of 2007.

The lowest rates in this new range are as high as 6.49%, available either as a 3 year tracker or a 5 year fixed rate, both with a £299 fee, and the highest rate is a mouth watering 3 year fixed rate at 7.29%, albeit with no arrangement fee.

Although these rates are available up to 97% LTV, even borrowers who took a 97% LTV mortgage 2 years ago will in most cases now have an LTV below 90% as a result of the strong property market and therefore will have plenty of more competitive remortgage options to compare with these rates, despite the low fees.

I suspect these new products are therefore more likely to reduce Halifax’s share of net lending rather than contribute towards increasing it, unless a lot of borrowers with the relatively small loans these rates are targeted at take the view that it is not worth bothering to remortgage to get the much cheaper rates available elsewhere, often with a free valuation and free legals. No doubt that is what Halifax is hoping for!

Category: House and home, Interest rates, Mortgages

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