Video Transcript:
There’s been more gloomy news from the mortgage market this week, with the Bank of England figures revealing that mortgage approvals fell 24% in May compared with Aprils figures, and they’re 64% lower then May last year. In addition Nationwide’s latest house price index revealed that the average house price has fallen 6.6% over that past 12 months, and many experts are warning that the slowdown could be worse than many people were expecting. Much of this is being put down to the fact that an increasing number of people are just struggling to get mortgages because of the credit crunch, and the impact it is having on the mortgage market.
Stephen Noakes, who is the Marketing director at Cheltenham and Gloucester, is with me today just to talk about what is happening with the mortgage market and what it means to consumers.
Q1: Thanks for joining us today Stephen. Can I just ask a bit about the pricing of mortgages at the moment, because I think this is one of the things that consumers are really struggling to understand, because obviously bank rate hasn’t changed since April and its fallen 0.75% since December last year, yet mortgage rates are still going up. Can you explain why that is happening?
Stephen Noakes: Yes, I mean I think that a lot of people have this kind of perception that if bank rates have been falling, mortgage rates should surely follow, but the reality is that it’s probably worth me spending a bit of time talking about how we actually fund the mortgages that we provide to customers.
So, on the variable rate products we actually buy at the inter-bank rate, so people talk about this LIBOR – London Inter Bank Offering Rate - and because banks have increasingly become nervous about lending to each other that rate has actually been going up, irrespective of the fact that bank base rates have been going down. So actually LIBOR at the moment is actually running at about 6%, over 6%, despite the fact the base bank rates are only at 5%.
Q2: And are fixed rates funded in a slightly different way?
Stephen Noakes: They are, you’re right, they are funded in a different way, so you then kind of get into different financial instruments essentially. You have things called swap rates, and again because the markets have been pricing in the fact that interest rates are going to rise, we’ve also seen swap rates - particularly in the last six months - increase quite dramatically.
So the cost of our two year products, if you go out and look at the swap rates they’ve actually gone again above 6%, so it’s because of those sort of two factors that both the price of the tracker products, the variable products and the fixed products have actually increased.
Q3: I mentioned earlier about the latest Bank of England lending figures showing a big slump in lending, and much of that is caused by the shortage of funding available to lenders like yourselves - this is obviously having a knock on effect to the housing market and is precipitating the downturn. But clearly mortgages are a big part of your business. How worried are you about the current environment?
Stephen Noakes: I mean there’s no doubt that over the last couple of months we’ve seen a big change in the mortgage market, and actually we’ve seen a number of lenders actually pull back, and there has really been this ‘flight to quality’. As a consequence we’ve actually, as a business both under the Lloyds TSB brand and the Cheltenham & Gloucester (C&G) brand, picked up a lot of market share because we’ve been one of the few lenders that’s actually still been active in the market and still open for business, and whilst market share isn’t formally reported, we’ve actually seen very strong movement in that.
Q4: Can you just explain the difference between the Lloyds TSB brand and the Cheltenham & Gloucester brand, because for a lot of people it will be quite confusing. Do you offer the same products under both brands?
Stephen Noakes: C & G is wholly owned by Lloyds TSB, but we do offer mortgage products under both brands. The pricing on the two brands is exactly the same, but there are some propositions that are specifically targeted to meet the needs of the individual customer segments which shop those different brands and different channels.
And then on the intermediary side that’s also a channel where we use the C&G brand, so you’ll hear about “C&G for Intermediaries” and that’s the brand we use for that side as well.
Q5: How are you playing the current market conditions? We have obviously seen some lenders really batten down the hatches and effectively price themselves out of the market, but as you have said you are still very active in the marketplace. Your products aren’t best buys as such – they haven’t got the cheapest rate - but you have launched two new deals in recent months, your All Weather mortgage and your Airmiles mortgage - can you just explain a bit about those products?
Stephen Noakes: I mean just in terms of the broader point, it’s true to say that price is clearly an important factor in peoples purchase decision in terms of what mortgage they want. It’s a big outgoing on a monthly basis, so it’s right that price is competitive.
But price is not the only thing, there’s a service relationship there, and increasingly we’re seeing from our customers that they want that kind of broader service offering, so ‘All Weather’ is a great idea in the fact that it’s actually providing customers with the opportunity to track the base rate down, and then move onto a fixed product without having to pay any early repayment charges, or indeed fill in any additional forms. They also get advice, and access to a website that provides them with a view in terms of where the economy is and what base rates are likely to do so that they can be informed through that process.
So it’s really trying to respond to that customer need, and meaning that we are kind of competing as much around service, and providing that service offering, as we are purely on the price side.
Q6: And what is the Airmiles mortgage?
Stephen Noakes: The Lloyds TSB on a broader basis has got a relationship with Airmiles. It started last year with the launch of the ‘Duo’ credit card. We’ve extended that this year by launching a mortgage, an ‘Airmiles mortgage’, where essentially where you take a fixed rate product – at the moment a five year product fixed rate deal – you get 6,000 Airmiles upfront, then you get 50 Airmiles per month over the life of that mortgage. So again it’s a competitive rate, but it’s providing that added benefit to our customers.
Q7: You mentioned when you take the mortgage out you get 6,000 Airmiles - what does that equate to, where will that fly you to?
Stephen Noakes: I mean it essentially depends on how many people you are clearly flying. It can certainly get one individual to New York and back, it could get a family of 4 to the Mediterranean during the summer, so there’s a number of different things. I know there is increasing concern about flights, and the green nature of that, [but] you can also buy additional benefits with those Airmiles, so you can take your family to Alton Towers or other theme parks etc.
Q8: And the Airmiles you accrue with the mortgage, are they in conjunction with Airmiles you accrue elsewhere, with other partners such as the Lloyds TSB duo credit card or something?
Stephen Noakes: You accrue the Airmiles from all of those different suppliers and you can access them through the one central site.
Q9: One of the increasing problems we are seeing is that a growing number of people are struggling to remortgage because they are coming to the end of the current deal, but because of the mortgage squeeze and the credit crunch they’re finding it difficult to find a new product to move on to. What help are you giving those people, whether they’re existing Lloyds TSB or Cheltenham & Gloucester customer or new customers who are currently with other lenders?
Stephen Noakes: Clare I think you raise a good point, because I think at the current moment in time there’s a lot of uncertainty in the market, and a number of customers are actually just thinking in that period of uncertainty the easiest thing to do is do nothing. A lot of them have actually moved onto the standard variable rate of their current mortgage provider, which in most instances is probably not the best place for them to be. So the key encouragement that I would kind of give to anyone is go and speak to their lender, clearly come and talk to us, just in terms of what the various options are, and what the best thing to do in terms of moving forward with the future mortgage payments.
Q10: So despite the difficult conditions are there still options available for most people?
Stephen Noakes: There are still options, increasingly in the market customers probably need to do more in terms of understanding what those options are, but there are options available.
Clare Francis: Thanks very much for that Stephen.
Stephen Noakes: Thank you.
