The product range is available for 2-year, 3-year and 5-year terms on loan to values from 50% to 85%.
But Ray Boulger said: “The advantage of an ERC free, 5-year fix is that you don’t know what your circumstances will be like over a period as long as five years.
“It would not be appropriate for us to ask clients when we see them, “what do you think the likelihood that you’ll be divorcing your partner in the next five years?” But the reality is that one in three married clients will ultimately do that.
The cost of ERC fee free
“Everybody has to make up their own mind about how important it is to have an ERC free product," Boulger added. "What Coventry is offering is something which is very rare in the fixed-rate market.
“If you look at their cheapest rate at 4.05%, you’re paying a premium of just over half of a percent compared to the cheapest 5-year fix on the market to have no ERCs and that’s a judgement that people have to make as to whether people should pay that sort of premium."
And he said: “We could possibly have very low interest rates for the next five years so it doesn’t necessarily work out that they’ll work out cheaper but at least you don’t have to pay a big premium now. So what you have to weigh up is the comfort of having a 5-year fix, is clearly worth paying something for, the question is how much?
“If you’re worried of locking into a fix means you may miss out on some better deals if rates fall further, that might be one reason you would take an ERC free product because you could change again.
“In this market it’s much harder to see rates fall much further, so you’d want to have a 5-year fix with no ERC fees if you do just want to maintain flexibility."
Not just for divorce
While most couples taking out a mortgage together aren’t thinking about the possibility of getting a divorce they may well want to move in five years.
“There’s still a lot of unknown factors in the market, for instance when Greece defaults, it’s very hard to know how bad the contagion will be," said Boulger. "If the banks do end up freezing up again then one could see lenders tightening up on criteria and lending may become difficult.
“So if you want to move in four or five years time and you found you couldn’t port your mortgage because you couldn’t meet lenders’ criteria, at least with an ERC free product you can redeem it ERC free and go elsewhere. Chances are that even if you can’t port it, you can find another lender you can borrow from.
“That’s probably about as good of a reason to take an ERC free product as worrying about getting divorced.”
John Mawdsley, chief executive of Omnii Solutions and previous owner at The Mortgage Partnership, launched a similar product.
Mawdsley said: “It’s a very dynamic product and at the time when I launched a similar product while I was at The Mortgage Partnership, it proved quite popular.
“As far as I’m concerned, the launch of Coventry’s ERC free product is a great indicator that lenders are starting to be more adventurous by finding more niches and I think it’s a good fit for the market.”
Coventry was unavailable for comment.
