With the continued rise in interest rates, leading to an increase in the Bank Base Rate linked reversion rate, customers are opting to refinance earlier, resulting in less time spent on the higher reversion rate than anticipated, compared to previous trends.
Precise Mortgages expects that their customers will now spend an average of five months on the reversion rate. This change in customer behavior will lead to a projected loss of £160m to £180m for OSB when they announce their half-year results in August. However, the company assures that their capital and liquidity positions remain strong.
Prior to the profit warning, analysts predicted that OSB would report pre-tax profits of approximately £550m this year.
As a result of this announcement, the company’s shares in OSB experienced a significant decline of nearly 30%, reaching 333.2p during Friday’s afternoon trading, which valued the company at £1.4bn.
In response to this change in customer behavior, OSB states that they are required to recognize an immediate adjustment to the carrying value of the loan book through net interest income. However, analysts at Jefferies believe that there is no read-across to other parts of OSB or to Paragon Bank, although OSB’s underwriting practices may come under scrutiny in light of this development.
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