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How important are mortgage incentives on a product?

by: Andrew Montlake, director of Coreco
  • 09/03/2017
  • 0
How important are mortgage incentives on a product?
Lenders have gone to great lengths when enticing brokers and borrowers to their products. But are they worth it?

I have never really been keen on incentives. They often act to just cloud the judgment of clients (and sometimes brokers) around comparing what the real cost differentials are.

I especially do not see any reason to offer prizes, draws and the like to brokers either, though this has largely been consigned to the history books in any case.

Back somewhere through the mists of time, I remember various offers including the chance to win a car (a Rover I think), mortgages paid for a year and a whole host of other things.

Distortion

The real problem is with the term incentive; it puts in mind something tempting that makes someone take a deal that otherwise they wouldn’t do because it is generally poor value.

For example, I have never understood why incentives are allowed at all where new-build properties are concerned. They cause distortions and other issues – just sell the property for the value it is actually worth.

Ignoring some of the more obvious gift type ideas like shopping points, a specific product feature such as cashback, stamp duty or fees assistance feels like something very different and is preferable. These are some of the things that can be very valuable, especially to first-time buyers.

I am also old enough to remember the famous Bank of Scotland products that allowed you to roll in Stamp Duty and legal fees as well as get a cheque book to draw down an additional sum as and when required. While we may laugh now, they made a difference to many sensible buyers.

Helping borrowers

The best incentives, are therefore those that actually help the borrower and as it is hard enough to save for any kind of a deposit these days, help with real costs such as Stamp Duty, valuation and legal fees can be the turning point between purchasing a property and not.

In fact, these are the only type of benefits that matter, things that make a real difference to borrowers and allow them to buy their dream home when they may otherwise have struggled.

Everything else is just baubles and I would much rather see lower rates and lower fees than a procession of pretty incentives that do nothing to really help, but confuse what is already a difficult decision.

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