One Savings shares tank after hit on mortgages

Shares in One Savings Bank have plunged after it emerged that a ‘step change’ in the behaviour of mortgage borrowers as interest rates rise could cost it £180m.

The group said borrowers coming to the end of fixed-rate deals were moving more quickly to secure new arrangements.

That meant they were spending less time on the higher ‘reversion’ rate – the default when fixed terms end and which is linked to the Bank of England rate – than previously expected.

Shares tumbled 28.8 per cent while rival Virgin Money fell 2.2 per cent and Paragon bank was down 2.6 per cent.

The update shed light on how some borrowers were tidying up their finances. 

Interest rates have climbed from 0.1 per cent in December 2021 to 5 per cent today and are expected to hit 6.5 per cent as the Bank of England tries to tame high inflation.

That has resulted in a sharp rise in the cost of fixed-rate mortgage deals. More than 2m borrowers face a crunch when deals expire in the next 18 months.

One Savings said it had observed a ‘step change’ in the behaviour of owner-occupied and buy-to-let customers using its Precise Mortgages brand as interest rates rise, pushing up the reversion rate.

‘Customers are choosing to refinance earlier and spend less time on the higher reversion rate than expected, compared to previously observed behavioural trends,’ the lender said.

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

Latest annual results showed net loans rose 12 per cent to £23.6billion last year. It has said it is still on track to grow loans by 7 per cent this year.