Spanish rebrand of Abbey and Bradford & Bingley branches ushers in new phase of mortgage competition

One of the first things Santander has done on introducing its name to the UK High Street is to introduce competitive two-year fixed rate mortgage deals.

As the first of 1,000 Abbey and Bradford & Bingley branch shopfronts puts up the new Santander sign, mortgage borrowers with 90 per cent loan to value will be able to walk in and request a two-year tracker with a £995 fee that charges only 4.99%.  

That's around 0.2% cheaper than the nearest competitors for that type of mortgage.

Meanwhile, Santander's 2-year fixed rate for borrowers with 75 per cent loan to value stands at 4.39%.  This is slightly more than the market average of 2-year fixed rates for those type of borrowers, which has recently fallen to 4.06%.  However, the Santander deal has no arrangement fee, making it a winner for some borrowers — particularly those with lower mortgage balances.

The might of the Spanish banking group has been focused on one thing: efficiency. From the outset, this certainly seems to be driving competitiveness. Will the government-supported big UK bank conglomerates be able to achieve enough similar efficiencies to compete?

Cuts! Glorious cuts.  And that's despite no change in the base rate.

Woolwich was the first lender to announce it is dropping certain key rates, and Northern Rock and Abbey followed close behind.

They're not stingy cuts, either.  Interest on the Woolwich Lifetime Tracker mortgage for borrowers with up to 70 per cent loan to value (LTV) will drop nearly half a percentage point to 2.79%. That's still 2.29 per cent above base rate (see our previous notes of caution about trackers), but even so, for now that's a best-buy tracker for many. Alternatively, if the £995 fee puts you off and you're borrowing under 75 per cent LTV, there's a no-fee lifetime tracker available at 3.19%.

Northern Rock's cuts are less steep but it has managed to match Woolwich's 2.79% tracker mortgage rate.  This, however, is on a two-year deal not a lifetime deal. It asks for a smaller fee of £595.

Abbey, not quite matching the others' leading rates, launched a two-year tracker mortgage at 2.94% for borrowers with a 30 per cent deposit and a £995 fee. At the same fee level and LTV limit, Abbey also cut the rate to 3.88% on its 2-year fixed rate mortgage. All Abbey's deals are available through Alliance & Leicester branches as well as its own (and, of course, through mortgage advisers). 

HSBC hasn't reduced any mortgage rates (yet) but it did slightly pre-empt this flurry of cuts with its recently-extended 1.99% deal. 

Biggest cut of the day is the 0.6 per cent sliced off certain deals in Northern Rock's buy-to-let mortgage range. With fees of up to 2.5 per cent of advance, its lowest rates aren't ideal for everyone, but it does provide a no-fee buy to let mortgage at 7.39% fixed for two years (up to 70 per cent LTV). Serial investors also appreciate its £3 million, 10-property portfolio limit.

So, competition heats up among the big (non-bailout) boys – Santander, Barclays and HSBC – and Northern Rock is making aggressive moves again, notably on fees (an overlooked area of mortgage affordability).  Will smaller lenders be prompted to trim their lending rates too? Or will they compete on other factors, such as loan to value?  Watch this space.

. . . and Lloyds, Barclays and Abbey aren't far behind.

As promised in Spring, the Financial Ombudsman Service (FOS) has just released its "name and shame" list of banks and financial institutions based on how well they resolve customer complaints.

The list tallies only the cases referred to the Financial Ombudsman Service, not total complaints to an institution.  FOS referrals are situations where a customer wasn't happy with the response to their complaint, and there's a wide variance in the numbers of complaints that the FOS upheld on the customer's behalf.  For this reason, the list makes interesting reading for mortgage lenders and borrowers alike.

We'll focus on: 

1. figures for mortgage complaints only—not banking, pensions or insurance;
2. percentages of cases upheld by the FOS, not the overall number of cases (since this depends on the size of the institution, amongs other things).

First thing to note: the industry average for mortgage-related cases is 41 per cent resolved in favour of the customer.  That means that in nearly six out of ten customer complaints, the FOS thought the lender was in the right.  That's not bad for the industry as a whole, compared to the percentages for banking and credit (61%) and insurance (70%). For figures like these, remember lowest means best.

So, who scored worse than average?

GMAC-RFC scored badly on the mortgages list: 75 per cent of complaints to the Ombudsman were upheld.  This typically means that in 3 out of 4 cases the Ombudsman judged that they had either sold the borrower the wrong product, charged them unfairly or done something else that left their customer out of pocket. In each of these cases, restoration means putting the customer back to the position they were in beforehand—for example, repaying charges or interest and moving them to the deal they should have qualified for in the first place.

That 75% figure puts GMAC out in front by quite a long way.  Any comments would be welcome as to why you think this is :)

GE Money (61%) and Preferred Mortgages (58%) came in second and fourth on the list, but they're mingling with three High Street lenders who won't be at all pleased to appear in such company: Lloyds (58%), Barclays (55%) and Abbey (52%).

The only High Street lender to look good out of all of this is Nationwide, whose figure of 28% is lowest on the chart.  However: there are many other lenders who don't chart at all because they had fewer than 30 complaints in the six-month period.  This includes most of the building societies (Skipton, Yorkshire, West Bromwich among them) and some even more surprising omissions: for example, Halifax isn't on the list at all.  Surely some people must have complained about the UK's biggest mortgage lender?

Let us know what you think — especially if you're as unsurprised as we are to see GMAC up there!