Alliance & Leicester Standard Variable Rate

Thrugelmir

dvs wrote: »

Santander aren't simply rebranding the Alliance & Leicester. They are moving Alliance and Leicester customers to Santander. That is why they require the permission of the High Court. If they were simply rebranding, it would effectively be just a change of name. By moving customers from Alliance & Leicester to Santander they will be changing the legal entity. When Abbey was bought by Santander, they owned and eventually rebranded as Santander. Santander bought Alliance & Leicester and are going to transfer their customers to their business. They anticipate that most Alliance & Leicester cutomers will be transferred to Santander by the end of 2010.

Santander have said that once a customer moves on to Santander's IT systems they will be a Santander customer. However, the Alliance & Leicester mortgage contracts state that a customer will revert to the 'Standard Variable Rate' after their deal expires. If a customer has moved to Santander then the SVR would be that of Santander. However, Santander have said that existing Alliance & Leicester customers will now revert to what will be called the 'Alliance & Leicester Standard Variable Rate' rather than just the 'Standard Variable Rate'. So what Santander have done is to say that the your mortgage is now with us but instead of reverting to the SVR that we offer, you will revert to a different SVR that we will refer to as the Alliance & Leicester SVR. This will give them freedom to change the rate independently of their Standard Variable Rate.

Currently the Santander SVR is 4.24% and the A&L SVR is 4.99%.

Thanks for the clarification. Much appreciated.

Then in broad terms the reasons for the different SVR rates are more than likely down to the differing lending policies in the past. Santander, like Lloyds and HSBC maintained proper lending criteria. A&L in general terms was much looser.

I'm not saying this applied to everyone. However Santander hasn't the resource to look at all mortgages on case by case basis. It will look at its loan books as a whole.

dvs

I think A&L's mortgage book was probably in better shape than Abbey's but it's all to do with market buying rates. I guess there might be an opportunity to claim that the change to the terms and conditions is detrimental but it's a long short. I'm sure Santander's legal team have gone through the contracts very carefully.

Whatever the legal position, I think it's morally wrong. There is no incentive to ensure that the A&L mortgage rate is competitive. They'll probably just want existing SVR customers to remortage to another Santander mortgage.

dvs

MarkyMarkD wrote: »

There is a precedent for this. Dunfermline Building Society borrowers are paying an SVR very significantly higher than Nationwide Building Society borrowers, even though Dunfermline is now just a trading name of Nationwide.

There is something about the way that the Nationwide acquired the Dunfermline which meant it was able to keep a separate rate. When Nationwide acquired the Cheshire and Derbyshire building societies, they had to have the same SVR because of something to do with being a mutual (which doesn't apply to the Dunfermline).

VIGILANT22

I doubt A&L's book is better shape, thanks to the PlusMortgage which combined a mortgage with an unsecured personal loan. Borrowers could take a mortgage and loan with a maximum LTV of 125% LTV....exactly the same as NR...Abbey never offered such a product.........also if all is to believed A&L headed to the BOE before NR...could they have continued independently.??..Santander saved them.........

Thrugelmir

dvs wrote: »

Whatever the legal position, I think it's morally wrong. There is no incentive to ensure that the A&L mortgage rate is competitive. They'll probably just want existing SVR customers to remortage to another Santander mortgage.

That's how they'll vet the mortgage book over time.

As commercially they've taken the risk by buying the Company, which obviously had financial problems. Most likely funding.

If someone else had bought the mortgage book then rates could have risen materially higher.

dvs

I used to work for A&L and the mortgage book back then was one of the best - low defaults and better ratios. They also did not do buy to let. As a small bank, they relied heavily on other banks in order to lend.

The lending policy may have changed in recent years and the outlook may have been very different. The Plus mortgage was launched after I left and as I understand it, it was a very limited product. Whilst the amount they would lend may have increased, I would have thought that the criteria (income and credit scoring) would have remained high. Like I say, this was after I left so I only know what former colleagues would say.

Either way, I still doubt that A&L's mortgage book today would be any worse than any other bank. I guess it's a closed book (and has been for a while already as customers now are only offered Santander's mortgages). So the mortgage book is just being wound down. Santander may well try converting customers to other Santander mortgages (with fees, more tie-ins and a current account no doubt!)

Ichabod

The risk management of the A&L mortgage book is irrelevant to this issue. The reason is simply that they no longer need to be competitive in the marketplace.

As A&L are offering no new mortgages and no longer need to compete with rival banks, their SVR can be anything they want it to be. They have a finite book of existing mortgages that will dwindle over time, so to maximise revenue from this book they keep the SVR high.

It is no coincidence that as as soon as A&L stopped offering new mortgages, they acquired the highest AVR on the market.

For those of use with A&L mortgages beyond the initial discount period, any equity we have left in our house after the recent falls is not enough to obtain a fixed rate better than the SVR we are currently paying.

A considerable pain in the backside for us, but fairly rudimentary economics for the bank

Thrugelmir

Ichabod wrote: »

The risk management of the A&L mortgage book is irrelevant to this issue. The reason is simply that they no longer need to be competitive in the marketplace.

As A&L are offering no new mortgages and no longer need to compete with rival banks, their SVR can be anything they want it to be. They have a finite book of existing mortgages that will dwindle over time, so to maximise revenue from this book they keep the SVR high.

It is no coincidence that as as soon as A&L stopped offering new mortgages, they acquired the highest AVR on the market.

For those of use with A&L mortgages beyond the initial discount period, any equity we have left in our house after the recent falls is not enough to obtain a fixed rate better than the SVR we are currently paying.

A considerable pain in the backside for us, but fairly rudimentary economics for the bank

If your equity has fallen, and does not allow you the flexibility of remortgaging then you are giving the precise reasons for higher SVR. As across the whole mortgage book it significantly increases the risk of default. The reason for leaving SVR high is sorting the mortgage book out in a very simple manner.

Ichabod

Bit of a chicken and egg debate, this one. However...

...the lack of equity explains our lack of movement away from A&L, not the bank's choice of SVR. The customers of other banks with different SVRs lost exactly the same proportion of their home value as did A&L customers.

Were A&L still competing for custom, the SVR would most certainly not be so high.

MarkyMarkD

dvs wrote: »

There is something about the way that the Nationwide acquired the Dunfermline which meant it was able to keep a separate rate. When Nationwide acquired the Cheshire and Derbyshire building societies, they had to have the same SVR because of something to do with being a mutual (which doesn't apply to the Dunfermline).

Whilst the point you make is a good argument, I'm not sure it's valid. AFAIK Dunfermline borrowers are now members of Nationwide, just like Dunfermline and Cheshire borrowers.