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(Alliance News) - OSB Group PLC on Friday said it will take as much as a GBP180 million hit to first-half results, because customers are acting more quickly than expected to refinance their mortgages at favourable rates.
OSB, which stands for OneSavings Bank, said that as its mortgage customers reach the end of their initial fixed term, they are choosing to refinance earlier than expected and therefore spend less time on the higher reversion rate. This rate is linked to the Bank of England's bank base rate and has been rising over the past year as the central bank hikes UK interest rates.
"As the first half of 2023 progressed, the group observed a step change in the behaviour of Precise Mortgages owner-occupied and buy-to-let customers reaching the end of their initial fixed term," OSB explained.
OSB said it now expects customers to spend an average of five months on the higher reversion rate, which it said it is a reduction from its previous expectation without saying what that had been. As result of the reduced time spent at the higher rates, OSB said it will make a negative effective interest rate adjustment of GBP160 million to GBP180 million on an underlying basis against first-half results.
"Once a change in customer behaviour becomes apparent, and is expected to persist, the group is required to recognise an immediate adjustment to the carrying value of the loan book through net interest income," OSB explained.
"Significant judgement is required in estimating how long customers will spend on the higher reversion rate in the future. The group has reviewed customer behaviour in the first half of the year and has revised the expected future behaviour of Precise Mortgages customers once they reach the end of their initial fixed rate period."
Excluding the negative effective interest rate adjustment, underlying net interest margin for the first half of the year is expected to be marginally ahead of expectation, OSB said. Net interest margin in the second half is expected to be broadly flat on 2022, it said.
OSB said it will release its results for the six months that ended June 30 on August 10.
More positively, OSB said it remains on track to deliver about 7% growth in its underlying net loan book in all of 2023.
OSB shares were down 20% at 376.80 pence early Friday in London.
By Tom Waite, Alliance News editor
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