LONDON, July 7 (Reuters Breakingviews) – Being a bank investor was already hard enough in 2023. Shareholders who thought rising interest rates were a one-way bet realised otherwise when losses on long-term bonds helped sink Silicon Valley Bank. OSB (OSBO.L), a specialist UK mortgage lender, just threw another curveball. The group’s market value, which was 2 billion pounds ($2.5 billion) when markets closed on Thursday, fell by one-quarter on Friday, after a trading statement released the previous evening. In it, OSB said it will take a roughly 170 million pound hit to revenue because customers were refinancing home loans quicker than expected.
Accounting rules force lenders to recognise mortgage revenue evenly over the product’s life, which involves making an assumption about the effective interest rate at the origin. That, in turn, involves predicting how long customers will stay on higher variable-rate tariffs after their fixed-rate deals expire. Central banks’ inflation fight has changed the dynamics here, since rising rates incentivise borrowers to switch more quickly. For a portion of its loan book, OSB reckons customers will stay on floating rates for just five months before refinancing, less than one-third of its previous assumption, according to a person familiar with the matter. The lower figure implies less revenue. It’s yet another wildcard for investors. (By Liam Proud)
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