Property & Mortgages

CYBG confirms swap rate hikes not reaching mortgage customers

UK mortgage approvals

CYBG has confirmed lenders were choosing to swallow the increases and take the hit on their margins

In its 2018 annual results, CYBG confirmed lenders were choosing to swallow the increases and take the hit on their margins.

CYBG plc. is a holding company that owns Clydesdale Bank, Yorkshire Bank, Virgin Money UK and the app-based bank B in the United Kingdom.

Its results showed a 10 basis point fall in net interest margin to 2.17% which was driven by the competitive front book pricing environment in mortgages.

CYBG also acknowledged it had experienced issues with broker servicing around the start of 2018 which had hit its pipeline, but said these had been solved with normal levels of growth returning.

In all, around 80% of its £5.2bn mortgage sales during the year were completed through brokers, with market share rising slightly from 1.73% to 1.77%.

It said, in late 2017, it brought mortgage processing back onshore, as part of its customer journey improvement initiatives.

Some servicing and fulfilment delays arose resulting in its broker pipeline build being lower than it had hoped, with mortgage growth slower around the third quarter of the financial year when it felt the impact of lower applications at the start of 2018. It said these issues are now resolved, with a return to a more normalised level of growth in the final quarter.

CYBG added that the outlook for the UK lending market was more subdued than in recent years.

It said in the mortgage market, economic uncertainty has reduced customer demand while competition has remained intense, resulting in a challenging pricing environment, with swap rate increases not being fully passed on to customer pricing.

CYBG’s loan book grew 4.5% to £24.5bn with the loan to value (LTV) of its mortgage portfolio rising slightly to 58.8% from 57.5%.

It noted that customers were continuing to favour fixed rate mortgage products with its fixed rate book growing to 78% of total mortgage balances and accounted for 96% of mortgages drawn in the year.

Longer term fixed rate mortgages are growing more popular with five-year fixed mortgages now accounting for 27% of the portfolio, compared to 22% in 2017, it added.

The buy‐to‐let (BTL) property market has been more subdued with this falling from 33% to 31% of business.

CEO David Duffy, said it had been a landmark year for CYBG including the takeover of Virgin Money.

Underlying profit before tax was up 13% year-on-year to £331m but the group suffered a statutory loss after tax of £145m due to legacy payment protection insurance costs.

Duffy said that in a competitive market, they have delivered an increase in underlying profits, returns and capital generation – all of which means they are delighted to recommend an increase to last year’s inaugural CYBG dividend, payable to all shareholders.

He said that clearly Brexit negotiations mean the external political and macro-economic environment remains inherently uncertain.

He said they have planned for a period of uncertainty, but it is impossible to ignore the lower levels of business confidence, especially for SMEs, while the final specific outcome of negotiations remains unclear.

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