Forget price wars, the innovation battle is coming
The end of 2012 and the start of the new year has seen a minor price war break out in the intermediary market. Lenders have certainly set their stalls out earlier than normal, which is excellent news. I have not spoken to a lender on our panel that wants to do less than they did in 2012.
The Funding for Lending Scheme has certainly given us a push in the right direction. Obviously the key will be what happens at the end of the tranche. FLS2 – maybe? But, as a few commentators have already stated, this may have to be more specific in its conditions of use i.e. specific LTV tranches, agreed FTB tranches etc.
Whilst the keen pricing is welcomed continual cutting of price to be in the top quartile will not open out much more of the market. Yes it may tempt a few more to remortgage once fixed rates hit a certain level but real market innovation is needed.
We have seen some innovation during the last few months which again is welcomed. However, the key is targeted innovation that opens up sectors of the market that have been closed for a number of reasons. This year has already seen two such excellent examples of such targeted innovation.
The first is Woolwich with its Family Springboard Mortgage. The concept of, in effect, a cross charge on a savings account is not new, 17 years ago when I was a credit consultant (senior underwriter in old money) we did occasionally look at cross charging of other collateral whether that be savings or other property to support a new mortgage.
The key to the Woolwich deal is that it’s a very well designed product and not an exception to the rule that an underwriter can use at their discretion.
By creating a bespoke product, Woolwich have created one of the very few win, win, win situations that all the training gurus talk about. The product opens up more opportunity for both first-time buyers and, just as importantly, the second steppers to get the higher LTV loan.
The family member does not have to provide a gifted deposit and all the issues that can create but instead they even get a rate of interest on their savings. Also the Woolwich will increase both its lending capability but also should increase its savings inflow which will no doubt help.
The second interesting innovation came from Clydesdale with its ‘low start’ mortgages. They are offering a three-year interest-only fixed rate which reverts to capital and interest at the end of the fixed rate. Again we have seen many changes with interest only during the last 12 months and this has stopped many people either joining the market or being able to move lender/home.
Whilst we all understand the wider market implications, as with everything there are always going to be circumstances where initially interest only is good advice. This product will, therefore, help fill that void and most tellingly it is being offered to the intermediary market first.
The key to our market moving forward will be innovation and we have been asking lenders to innovate for quite a while so congratulations to both Woolwich and Clydesdale for this. As I stated earlier though, it’s not quirky that we want but true innovation in the areas of the market that need it most. I await the next moves with interest.