As high street lenders enter the race to launch the first CAT-standard mortgages, experts are suggesting the Government’s latest move to make mortgages clear, fair and easy to understand may not be the sales winner it anticipated.
Tony Fisher, director of marketing at Private Label, said: “The CAT-marking concept is to be welcomed as it will help the understanding of the average buyer, but I am not actually sure that many will sell as CAT-marked mortgages will not have the same generous giveaways associated with the best new business offers on the market.
“Most lenders will launch a CAT-marked mortgage, but in such a competitive market they will continue to offer incentivised products.”
Mark Smitheringale, head of corporate communications at Skipton Building Society, said: “Our initial response to the announcement was cool. When customers are faced with the decision of whether to buy a CAT-marked product or a competitively priced product then most will vote with their pockets.”
Borrowers opting for a CAT-marked mortgage will get a ‘plain vanilla’ product with no sting in the tail. All qualifying mortgages must have interest calculated daily and no separate mortgage indemnity charge with an interest rate no more than 2% over the Bank of England base rate. It must carry no redemption charge or, if capped or discounted, it must have no redemption overhang.
On top of this, an arrangement fee cannot be charged and all other fees must be disclosed up front.
Although brokers can accept procuration fees, they will not be able to make upfront charges for advice and this has disappointed the industry.
Tony Ward, managing director at First Active, said: “The new CAT standards are an excellent benchmark, but with brokers unable to charge for their advice it is unlikely that they will be incentivised to sell or promote them. With almost half of all mortgage lending carried out through the intermediary market last year, it seems strange that the Treasury has chosen to overlook this vital element within the CAT.”
However, Ray Boulger, technical manager at John Charcol, said that he does not think this will be much of a problem.
He said: “Although this is a potential issue, there will be few cases where a CAT-marked mortgage offers best value.”
This is ultimately because the costs of making mortgages compliant will be passed on to the borrower, so compared with other products they will not be competitive.
First Active, for example, has already stated that while it does plan to sell a qualifying mortgage, it will also offer products that when benchmarked alongside the CAT-marked mortgage will offer better value and more flexibility.