One Savings shares tank after hit on mortgages

Shares in One Savings Bank plummet after it emerges a ‘step change’ in mortgage borrower behavior as rates rise could cost it £180m

Shares in One Savings Bank have plummeted after it emerged that a ‘step change’ in mortgage borrower behavior as interest rates rise could cost it £180m.

The group said borrowers who came to the end of fixed-rate deals were quicker to make new arrangements.

That meant they spent less time at the higher ‘reversion’ rate – the standard rate when the fixed term expires and which is linked to the Bank of England rate – than previously expected.

Shares fell 28.8 percent, while rival Virgin Money fell 2.2 percent and Paragon Bank fell 2.6 percent.

The update sheds light on how some borrowers were cleaning up their finances.

‘Step change’: One Savings shares plunged 28.8 percent, while rival Virgin Money fell 2.2 percent and Paragon Bank fell 2.6 percent

Interest rates have risen from 0.1% in December 2021 to 5% today and are expected to reach 6.5% as the Bank of England tries to tame high inflation.

This has resulted in a sharp rise in the cost of fixed-rate mortgages. More than 2 million borrowers face a crisis when deals expire in the next 18 months.

One Savings said it had observed a “step change” in the behavior of owner-occupied homes and buy-to-let customers using its Precise Mortgages brand as interest rates rise, increasing the relapse rate.

“Clients are choosing to refinance earlier and are spending less time at the higher than expected relapse rate compared to previously observed behavioral trends,” the lender said.

That prompted the bank to review the book value of its loan book, resulting in an ‘adverse underlying effective interest rate adjustment’ of between £160m and £180m.

The latest full-year results showed net lending increased by 12 per cent to £23.6 billion last year. It has said it is still on track to grow loans by 7 percent this year.