This, after all, is just what the market needs, isn’t it? A widely accessible product that can cut the costs of monthly mortgage payments for literally hundreds of thousands of borrowers?
A series of products, with competitive fees, serving under-served borrowers and destined to change the fortunes of any customer who might have seen the headlines generated by these rates, and have either contacted their adviser or sought out the details from the lender themselves?
Or are these products simply the equivalent of a chocolate teapot? Not just completely useless, but completely unnecessary in the first place and show a distinct lack of understanding about what the market needs and where there is a requirement for mortgage products, funding and empathy.
Understanding gap
Because if there is a part of the market that doesn’t need race-to-the-bottom, two-year fixed rates, at present it’s the 60 per cent LTV borrower. Who, for the most part, would be much better eschewing these wet dream mortgages, with their huge product fees, and instead opting for a five-year deal which you can currently access at below 1.2 per cent, and which are most likely to be far more economic over that term.
Sometimes you do wonder who is making these decisions? Of course, if you judge a lender by its ability to garner some quick consumer headlines about how ground-breaking your 0.99 per cent rate is, then you’ve certainly achieved success.
However, if you judge a lender by its ability to offer all types of borrowers – and their advisers – quality products, competitive pricing, excellent service levels, and to show an understanding for what is actually required in the marketplace right now, then you’ve failed miserably here.
Mind over heart
In a very true sense, this is where forward-thinking networks like ourselves should be using our position to lobby for a different approach.
This is not lender bashing for the sake of it; instead, we want lenders to engage with us and our adviser member firms to find out exactly where the sweet spots for our clients currently are. And we should also point out, we want advisers to know that their voice is heard within this network and it carries significant weight.
So, here’s a thought and some free advice – instead of thinking a 0.99 per cent, 60 per cent LTV is the right option, consider using that funding where it is most needed and where, quite frankly, it can make you more margin. Because we’re pretty certain that the margin level on these barrel-scraping rates will be next to nothing.
When it comes to five-year deals, a significant proportion – perhaps 50 per cent – of borrowers never reach the end of that term. They release early, for all manner of reasons, and the lender picks up a rather healthy early repayment charge (ERC) for their trouble.
Why not therefore use the funding to introduce some seven or 10-year fixes into the market at a competitive rate for higher LTV borrowers, who would undoubtedly welcome the certainty, but for whom upwards of half won’t ever make it to the end of that term. In other words, they are likely to be strong performers and there’ll be extra margin to be recouped from the ERCs as they are redeemed.
But, instead, we suspect that a certain laziness will continue and the bright lights generated by some very brief headlines will turn heads instead of minds.
