The mortgage market has an exciting new entrant for borrowers to consider when shopping around for a deal.
One of the biggest challenges that mortgage borrowers have faced in the last couple of years has been that many lenders are not really open for business. Oh sure, they still have mortgages available, but they price them uncompetitively so that they don’t end up having to do too much lending, or employ such strict lending criteria that they don’t actually approve too many mortgages.
This has led to two things. Firstly, the actual level of lending is extremely low. In 2011, the Council of Mortgage Lenders expects gross mortgage lending to be just £140bn. To put that in context, back in 2007, gross mortgage lending totalled a whopping £363bn!
It’s also led to a handful of lenders – the ones who do want mortgage business – dominating the market, in a way that is not necessarily a good thing for borrowers. In 2010, six lenders – Lloyds Banking Group, Santander, Barclays, Royal Bank of Scotland, Nationwide and HSBC – accounted for an incredible 81.5% of all lending.
What borrowers need is a wider choice of lenders to choose from, lenders who actually want to lend.
And we now have a very exciting new entrant to consider!
The State Bank of India
The State Bank of India has become the first Indian financial institution to lend within the UK, by moving into the buy-to-let arena. It plans to open up for residential business, and via brokers, in the New Year.
So far, the bank has only launched the one mortgage, a lifetime tracker for landlords. It is only available to landlords with a 40% deposit, and boasts an initial rate of 4.49% (base rate plus 3.99%), and carries with it a booking fee of £150 and arrangement fee of £1,990.
The first thing to say about this mortgage is that it’s a long, long way from being particularly competitive. For example, Woolwich has a similar product, with an arrangement fee of £1,999, which tracks base rate plus 2.98%, so a full 1% less.
Indeed, lenders as diverse as Market Harborough Building Society, Coventry Building Society, Platform and even the Bank of China all have deals open to landlords at far better rates, and with smaller fees than that on offer from the State Bank of India.
A ‘soft’ launch
But I wouldn’t write off the State Bank of India’s chances of making a positive impact on the UK mortgage market just yet. It’s usual practice for a new lender to begin fairly tentatively, offering products that aren’t exactly going to have borrowers hammering at the door, in order to get a feel for the market before launching more competitive deals.
I fully expect State Bank of India to work like this, so it will probably be a while before we see its deals at the top of the best buy tables. Nonetheless, the very fact that it wants to lend in the UK is something to be celebrated.
But if you’re a borrower, should you be concerned at doing business with a foreign bank?
Not quite so ‘new’
First of all, it’s worth noting that the State Bank of India is not exactly new to the UK. Indeed, it has had a presence here for over 90 years, and already has three branches in London (in the City, Golders Green and East Ham), as well as branches in Birmingham, Harrow, Leicester, Manchester and Southall, with further branches due to be opened in Wolverhampton and Coventry.
What’s more, the bank is part of the Financial Services Compensation Scheme (FSCS), which should make you feel a little happier about dealing with them, whether taking out a mortgage or depositing some savings.
Of course, if anything did happen to the State Bank of India which caused it to collapse – and given it is majority owned by the Indian Government, it’s probably fair to say that’s unlikely – your mortgage wouldn’t be wiped out, but would end up being taken over by another bank (or even our own Government) on the same terms.
Attractive to foreign banks
With British banks and building societies suffering, and even seeing their credit ratings take a hit, it’s possible that we will see more international banks pinpointing the UK housing market as a profitable opportunity. We already have the Bank of China offering lifetime tracker mortgages, while ING Direct, a Dutch bank, offers a number of excellent mortgages.
Before you deal with any international bank, for any reason, it always pays to check what cover is in place should something go wrong. But so long as they are a member of the FSCS, or at least some other compensation scheme, don’t rule out dealing with them simply because they are a bit exotic compared to your local building society!
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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.