For the Christians and pancake lovers among us, you’ll probably know we are currently in Lent. Without going into the ins and outs of biblical history, this was a reflective period before a sacrifice.
We too face a current dilemma as product innovators. Despite a buoyant market and truck loads of new lender entrants, the level of new ideas does not match the number of lenders – and it could get tougher.
When it comes to product design, the secured loans market is often thought of along with Wham! in their pomp, The Iron Lady and leggings, although I’m reliably told the latter maybe making a come back.
However, the secured loans market has made a fundamental shift in the way the early repayment changes (ERCs) are calculated on loans under £25,001. Put simply, one month’s interest plus the interest remaining to the end of the month of when the loan is repaid, or one plus one. That’s right – gone are the days of Rule of 78, hence Einstein and Newton are out of their jobs; and from the adviser’s point of view, this rule should simply have been read as Rule One: ‘That’s stitched up my client’. Also becoming extinct are their immediate substitutes, ‘slider scales’ that slide on so long they go through two-and-a-half Winter Olympics in some instances. It is also looking increasingly likely that as of April next year, this change will apply to loans in excess of £25,001. Good news for the consumers. A victory for watchdog. One up for the regulator. You’d be right and wrong.
No one can argue against lower charges, but returning to the initial point, what gets sacrificed in the process? Putting aside a reduction in commission that will inevitably mean a reduction in advice givers – for innovators, ERCs are a vital component in the mix. While lenders should not use this to profiteer – regrettably many do – ERCs should be there to protect their interests.
A few years ago large cashbacks were prevalent in the business-to-consumer market, typically 6-10 per cent of the mortgage balance. The benefit was clear – personal debt could be cleared or a conservatory built by remortgaging, keeping your mortgage balance identical. Furthermore, very low one or two-year fixes still remain, and can be useful for families with life-changing events such as a newborn or a mid-term injury to a self-employed bread winner. To accommodate these clients, the lender is giving away the benefit upfront, and needs to ensure they cannot become a financial victim of a remortgage straight-away. It’s their prerogative as businesses first and foremost.
ERCs do not only exist in quirky products. They also apply to the two-year products which prop up the first charge market. If this market was restricted by one plus one, do you think they could survive?
Of course, within this debate is the ‘hot topic’ of exit fees to cover the admin costs of theoretical deeds release – the regulator argues that £200 for a press of a button to close an account is excessive. I’m sure in time even the strokes on the keyboard will be done by the customer in their home – so it may have a point. However, the lender could have arguably set the exit fee artificially high so that benefit could be redeployed in the initial interest rate.
Please let’s think about it – if we, as an industry, build up momentum to reduce mortgage fees, we could become a nation with a one-size suits all mentality – and worst still, everyone on a standard variable rate.
Mainstream
Alliance & Leicester (A&L) has a 4.99 per cent fixed to 31/3/09 to 95 per cent loan-to-value (LTV). National Counties BS has a 5.34 per cent fixed to 31/7/10 to 75 per cent LTV. Portman BS has a 5.48 per cent fixed to 31/3/12.
A&L is poised to take on Northern Rock, Coventry and BM Solutions with a 125 per cent LTV product, dubbed ‘PlusMortgage’.
Intelligent Finance has improved its LTV to 85 per cent for its fast-track of income verification.
Buy-to-let
West Bromwich for Intermediaries has reduced its exit fee to £200. At the same time, it has improved its rental calculation to 100 per cent of a notional rate of 5.95 per cent.
Norwich & Peterborough BS can now process buy-to-let online.
Scottish Widows Bank now offers 85 per cent LTV available to applicants in professional occupations. Its standard rental cover is now 120 per cent, which does not have to be confirmed up to 75 per cent LTV.
The Mortgage Works (TMW) has extended its 100 per cent rental cover across to its nearprime range. This has limited distribution.
Adverse
Most of the March LIBORs were reset at 5.53 per cent; Platform’s looked high again at 5.62 per cent.
GMAC-RFC has removed its restriction on defaults, and introduced rate tiers dependant on completion fee level.
TMW now allows either number or amount of CCJs. It also now accepts CCJs registered in the last three months.
db mortgages requires a letter of explanation for non-payment of the last three months’ mortgage payments. I’d prefer it if more lenders took this approach, rather than restrict their criteria.
UCB Home Loans is poised to enter the light adverse arena. mi
