In an unprecedented move by Mortgages Plc, borrowers in the sub-prime market are to be offered a specifically-targeted flexible mortgage, supporting predictions from some quarters that the take-up of flexible mortgages will eventually constitute more than half of all new home loans.
Paul Howard, sales and marketing director at Mortgages Plc, said: “Most of our customers pay their mortgage on time, so why should they not be able to take advantage of flexible options?”
The Freedom Mortgage is the first flexible mortgage to be aimed solely at the sub-prime market. Borrowers can make overpayments, underpayments and take payment holidays.
An interesting feature is the drawdown facility, which allows clients to borrow up to 3.5 times their annual income. If they borrow less they have a ready-built surplus that can be used at any time to take payment holidays or underpay.
Howard said that the decision to offer a flexible mortgage was taken to ensure that a wider variety of products are available to borrowers unable to secure a loan from high street lenders and not to penalise them with a limited range of products.
He said: “The non-conforming mortgage market is lacking in product development.”
The loan is available to 85% LTV and offers an 1% discount until 30 June 2001, with an initial rate of 8.74%. A redemption fee is applicable for three years, although borrowers can make partial payments of up to 10% of capital each year without penalty. Any more than this and they will be charged a penalty of six months’ interest on the amount redeemed over the 10%.
The loan is available to borrowers who have had CCJs totalling no more than £2,000 in the last two years and any CCJs of less than £100 or more than two years old can be discounted. Borrowers are permitted to have arrears of no more than four months in the last 12 months and be no more than one month in arrears for the last three months.
Stuart Aitken, director of credit at competing lender SPML, said that the product’s downside was the redemption fee, a feature not usually associated with flexible mortgages.
He said: “If you have a redemption charge, then how flexible is that?”
Aitken also confirmed that SPML is interested in the possibility of developing a flexible mortgage itself.
Guy Batchelor, sales and marketing director at Platform, verified that it too is currently working on a flexible mortgage, but said it was still in development.
“We want to make our flexible product as flexible as it can be, within our sector of the market,” he said.