Highest SVR for 25 Years
Written on 7 September 2023 by
Virgin Money (plus Clydesdale Bank and Yorkshire Bank) announced yesterday an increase in its SVR to 9.49%, maintaining its unenviable position as the mainstream lender with the highest SVR.
The fact that Virgin feels comfortable maintaining its SVR margin at 4.24% above Bank Rate despite new Consumer Duty Principle 12 stating that, “A firm must act to deliver good outcomes for retain customers”, suggests it believes, presumably after very careful consideration, that the FCA doesn’t consider having a reasonable SVR is necessary for a firm to deliver good consumer outcomes.
Prior to 2008 most mainstream lenders’ SVRs were 2% or less above Bank Rate. Bank Rate was at 7.5% for 4 months from June 1998 and that is the only period since late 1992 that Bank Rate has been above 7.25%. I think therefore that Virgin’s 9.49% SVR is the highest mainstream SVR we have seen for 25 years!
The FCA’s apparent lack of interest in SVRs is an interesting contrast to its current focus on savings rates. Virgin does offer competitive interest rates on some of its current and savings accounts, which perhaps is in part a trade-off for its high SVR.
Virgin also has some competitive fixed and tracker mortgage rates, including a 2 year tracker up to 65% LTV with a current rate 4.01% below its SVR, and as one option for most borrowers will be a product transfer few will actually need to pay the SVR. I expect only a small proportion of Virgin Group’s borrowers are actually paying the SVR.
As few borrowers pay the SVR, perhaps the biggest real world consequence of a high SVR is its impact on a lender’s stress rate and hence the maximum loan it can offer. As the FCA requires lenders to use a stress rate of no less than 1% above the revert to rate for all purchases and capital raising remortgages except on fixed rates of at least 5 years, Virgin will now have to stress at no less than 10.49% on shorter term fixes and trackers.
Based on its affordability calculator, Virgin will only lend up to around 4x income, even for borrowers with no other financial commitments and those taking longer term fixes, which is likely to severely restrict its ability to attract new business!
Categories: Mortgages, Interest Rates, Ray Boulger
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