OSB Group PLC (LSE:OSB) warned it will face a hit of up to £180mln because customers are acting faster than expected to refinance their mortgages at favourable rates.
The specialist lending and retail savings group explained it had seen a “step change” in the behaviour of its Precise Mortgages owner-occupied and buy-to-let customers reaching the end of their initial fixed term.
OSB said customers are choosing to refinance earlier, when they reach the end of their initial fixed term, spending less time on the higher reversion rate than expected, compared to before.
The reversion 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.
OSB anticipates that precise mortgages customers will now spend an average of five months on the reversion rate and the reduction in the reversion period will lead to an estimated adverse adjustment of £160mln to £180mln in the first half of 2023.
"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 pointed out.
"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."
In reaction, the shares price slumped 27% to 343p.
Analysts at RBC Capital Markets lowered financial year 2023 net interest income estimates by £170mln and 2024/25 pre-tax profit estimates by c.2% driven by a reduction in net interest margin.
RBC has kept an ‘outperform’ rating but reduced its price target to 700p from 750p.
It sees “any weakness in the shares today as a buying opportunity.”