The fintech mortgage lender believes that pricing transparency will help customers make wiser decisions
Earlier this month, fintech mortgage lender Gen H shook up the market by switching from a standard variable rate (SVR) of 7.5% to a Bank of England base-rate tracker plus 3%, for a reversion rate of 6.5%.
Peter Dockar (pictured), commercial director of Gen H, said the decision creates greater transparency for its customers and enables them to make smart, well-informed decisions for themselves and their finances.
“While we cannot know for certain what the Bank of England base rate will be at any given time, a base-rate tracker means customers will understand that their mortgage payments will always reflect a formula of the base rate plus a fixed percentage rate,” he said.
What’s wrong with variable-rate mortgages?
Dockar said that, in a challenging economic landscape, it becomes increasingly difficult to defend the opacity of SVRs.
“We hope that by moving to a tracker reversion rate, we will continue to encourage other lenders to consider their own approach, and ensure their customers have sufficient education around SVRs and what it means for them,” he said.
Dockar thinks the decision will help customers more easily understand the cost of their mortgage, and build a certain level of predictability into their variable rate.
With this added level of certainty, Dockar said the move will help assist with household financial planning.
“This decision may also encourage customers to engage more intentionally with wider economic policy, prompting them to recognise the relationship between the base rate and their own household finances. Such awareness can only be a good thing,” he said.
What brokers think of the switch from variable to tracker products
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said moving from a standard variable rate to a base-rate tracker does feel very transparent as a pricing method. But he raised the question of whether it removes some flexibility.
Whilst many people seem to think that SVRs are always a bad thing, Taylor-Barr said a rate that is wholly controlled by the lender can be beneficial to customers.
“Some lenders have chosen not to pass through the full Bank of England increases onto their SVRs, to help customers, which is an ability you lose by directly linking your rate to the Bank of England base rate,” Taylor-Barr said.
Taylor-Barr viewed Gen H’s decision as good for pricing transparency, but less so for pricing flexibility that could be used to help customers at times of sharp increases.
Tracker mortgages: the advantage of transparency
Elliot Cotterell, director at Windsor Hill Mortgages, said the decision shows a genuine and trusting approach from the fintech lender.
“Linking their SVR to the base rate, plus 3%, maintains an expected cost, which is easier to calculate, rather than leaving this open-ended like other SVRs,” he said.
Historically and presently, Cotterell said lenders have the discretion of changing their SVR, which can be a concern for customers.
Therefore, he thinks it is a good start in providing a clearer approach to variable lending.
“Not having an SVR is a point of difference from most lenders and provides the possibility the reversion rate could be far more favourable at the end of the fixed rate period, for example,” said Graham Cox, director at Self Employed Mortgage Hub.
He believes the SVR at 7.5% may have been deterring borrowers worried about being stuck on it in a couple of years’ time.
What are your views on Gen H’s decision to switch from an SVR to a base-rate tracker? Let us know in the comment section below.