Scottish Widows has pulled all mortgages for new customers purchasing and remortgaging as the number of people applying for home loans plummets.
The lender, one of the smaller in the market, said it was simplifying its offerings and will instead focus on the lifetime mortgage market, including equity releases.
It is being speculated the pension and insurance company owned by Lloyds Bank is dropping its mainstream offerings due to the large drop in mortgage approvals.
Figures published by the Bank of England show the number of new mortgages obtained fell to 43,300 in September. This is 35 per cent lower than in September 2019, prior to the pandemic. Approvals for remortgaging dropped to 20,600, the lowest number since January 1999, and last week Santander revealed that it is currently lending £1bn less a month than last year.
Higher borrowing costs and the cost of living crisis have contributed to people finding it difficult to make the sums work to buy or upsize, as well as fewer people wishing to buy as they wait to see if prices drop further.
“Scottish Widows could think that now is the right time to change the dynamic and restructure their group,” said Nick Mendes, spokesperson for John Charcol brokers.
Scottish Widows’ specialism for later life products could also have an impact on the decision, experts say.
Aaron Strutt of brokers Trinity Financial added: “It is a tougher, more competitive market and perhaps so it may be that Scottish Widows is focusing on being a recognised specialist lifetime brand rather than struggling to compete in the mainstream markets.”
Mortgages for new customers will be removed from sale on Friday 17 November but any applications submitted up to Thursday 16 November will be able to proceed to offer and completion as normal.
Lifetime mortgages, where you take out a loan secured on your home which does not need to be repaid until you die or go into long-term care, are unchanged and new applications for these can be submitted as normal. The interest on this type of home loan is added to the loan amount (and compounds), rather than paid off monthly. This means how much you end up can be sizeable.
Scottish Widows were the largest provider in the offset mortgage market, a type of loan that lets you link your savings accounts to your mortgage. Typically you get no interest on your savings but it reduces your loan size by the amount of your savings, so you pay interest on less.
Mr Strutt said there has been an increase in demand for this type of mortgage as mortgage rates homeowners continue to use their savings to offset the higher interest rates while still having access to their cash.
The latest data from the Financial Conduct Authority’s Mortgage Lending and Administration Return shows that in December 2022, there were 830,000 offset mortgages – a total of 7 per cent of all mortgages in the UK.
Lenders offset the total balances of your linked accounts against the amount you owe on the mortgage each month, and then work out your mortgage interest on the lowered balance. For example if you have a mortgage balance of £100,000 and offset £20,000 in savings, you will only be charged interest on £80,000.
Whilst the narrower niche of offering offset mortgages has helped Scottish Widows to be more flexible and bring in customers, it hasn’t always maintained the same profile in recent years.
Mr Strutt said: “Scottish Widows really is one of the go-to lenders when it comes to offset mortgages, but the brand has been struggling to get enough business for years.
“There are other lenders offering offsets like Accord, Barclays and Coventry Building Society, but for the moment the withdrawal will mean there are a lot less offset rates available.”
He said it seems unlikely other lenders will pull their offset mortgages for the moment but added hopefully this is an opportunity for the other banks and building societies.
Mr Mendes said: “It remains to be seen now whether Lloyds or Halifax, within the same group, will take on offset mortgages.”
A Scottish Widows spokesperson told i: “Scottish Widows Bank’s business has naturally become more focused on lifetime mortgages, with other borrowing needs served by our other brands. This move reflects and cements that position in the market.”
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