Over the last few years the buy-to-let market has grown so rapidly most lenders now include a product addressing this market among their standard offerings.
Weak stock market conditions have compounded this growth further as investors turn to the property market as an alternative investment. While there have been many reports suggesting rising house prices and lower yields signal an end of the cycle, there will be little impact on larger portfolio landlords for whom letting property is a long term business. However, it is likely to discourage the smaller investor looking to invest in one or two properties ‘ especially in certain parts of the country.
The next potential boom sector could be homeowners diverting investment cash into their homes, not for home improvements, but to pay off some of their mortgage. Using a flexible mortgage or a current account mortgage to make overpayments will save a substantial amount of interest over the term of a mortgage.
When inflation was high, there was little point in accelerating mortgage repayments. Asset price inflation gave homeowners the opportunity to benefit from a geared interest in the equity they held in their home. With low inflation and the development of current account mortgages, traditional attitudes are now changing. Investment options for individuals are limited in current conditions and putting savings into a mortgage account is an attractive prospect, saving more in interest payments than can be gained through returns on a cash savings account.
The concept of one product with one interest rate through one provider is easier to understand compared to traditional methods of separate accounts with differing rates. Customers can create virtual savings, mortgage and loan accounts, and access capital through underpayment and extra drawings facilities. They also have the freedom to move money between virtual accounts online at any time.
Overpayment facilities may be the most important feature. The combined effect of low interest rates and low inflation on mortgage rates, salary increases and property value means homeowners will pay proportionally more of the total cost of their property over the term of a traditional mortgage. Overpayments would counteract this effect.
Often current account mortgages are considered suited to the wealthym with sufficient savings to offset against their mortgage. Current account pioneers, like Virgin One and Britannic Money, have heralded them as a product for all. I agree they are not just for the wealthy, but they will only work well for those who are financially disciplined. The benefits can only be reaped through the presence of savings or consistent overpayment.
Justine Tomlinson is marketing director of Mortgage Next