Does Woolwich’s recent axeing of its ‘free legal’ products signal the beginning of the end for incentives? And is this likely to deter remortgagers – making advisers’ already tough situation even harder?

With new business at record lows, will the squeeze on mortgage lenders’ margins force them to cut costs to the detriment of the products offered? Woolwich recently cut ‘free legals’ on some of its mortgages. Is this the start of a growing trend that would make life even more difficult for mortgage intermediaries and those clients who are short of cash?

‘In order to retain our headline rates on mortgages, we recently made a small change to our range. Direct mortgage customers of the bank taking on a fixed rate mortgage will need to appoint their own solicitor – though as we constantly review our proposition, when possible we will certainly look at reinstating this,’ said a Woolwich spokesman.

This latest move comes on top of a massive drop in business for intermediaries – mortgage approvals are down 57% on the same time last year. To make matters worse, borrowers are seeing virtually no benefit from the 0.5% cut in bank base rate (BBR) to 4.5% as lenders dither about reducing their standard variable rates (SVRs). The cost of some trackers increased after the reduction in BBR as lenders improved their margins. This is not going to encourage those looking for a remortgage to make a move.

A different repricing ball park

More than three-quarters of lenders have failed to pass on the savings to their customers. Darren Cook of Moneyfacts points out that we are now in a different ball park and repricing has become much more problematic. ‘Lenders have had little opportunity to reprice their SVRs to incorporate an increased probability of default, elevated risk and the higher cost of interbank lending.

‘With more base rate cuts on the horizon, which in part are intended to reduce the burden of household finances, we could find ourselves in a situation where future monetary policy committee decisions on a rate cut will have little or no bearing on the majority of current households’ mortgage outgoings,’ he says.

All of which is bad news for mortgage brokers because there is considerable anecdotal evidence that borrowers are holding off remortgaging, hoping for a return of the good deals they enjoyed up until a year ago. They might have a long wait. Mortgage fees have been rising sharply and rates look likely to remain at a much higher premium to BBR than has been the case in the past.

‘Two-year swap rates have come down to 4.46%,’ says Richard Morea of London & Country. ‘The best two-year fix is currently at 5.49% with a £700 fee. The last time swap rates were at 4.46% was February 2006, when the best two-year fix was 4.38% with a fee of £500.’