Within the mortgage market it’s apparent that demand continues to drive competition throughout the lending community, especially when it comes to products. We all know that some highly attractive fixed rate deals continue to dominate the market. These remain a big positive for both the industry and homeowners, but are enough of these potential borrowers open to, or being advised upon, potential lending alternatives, or are they simply transfixed by pure headline rate?
Now this is not a thinly veiled dig at the intermediary community and coming from a lending perspective it might seem a little strange to question activity in the hugely competitive fixed rate arena. However, while we as an industry thankfully remain far removed from the short-term rate churning days of old, the question remains, is enough time being spent on considering all potential alternatives and not just the ‘easy’ option?
Despite the holistic advice process vastly improving, there remain products which many borrowers aren’t necessarily aware of. Of course good intermediaries know this but once in a while it’s important to highlight the benefits of products which can sometimes go under the radar.
This particular article spawned from a piece I recently read surrounding one such product; the offset mortgage. The overriding sentiment was that while it remains a facility with numerous benefits, it continues to be overshadowed and underutilised, particularly due to lack of competition as well as general economic conditions.
These are pertinent points and do raise challenges for intermediaries when considering this product. The simple fact is that due to its tax efficient nature the gains of the offset concept are more financially noteworthy in a higher interest rate environment.
On the flip side, there’s the argument that market conditions for offset are pretty much ideal because of its ability to really make any savings work to their best ability. Which isn’t easy in a low savings rate environment. Then there is the lingering perception that offset equals high rates. In reality this is no longer the case as the costs associated with offset deals have fallen largely in line with the dramatic fall in standard rates over the years. Of course there remains a slight premium, although these are certainly nothing like those of years gone by.
While demand tends to drive product competition it’s also fair to say that competition also helps drive demand. Competition within offset mortgages certainly pales in comparison with fixed rate deals. There remain a number of good offset offerings but these still stem from a limited number of lenders. So what could drive more competition?
Raising the awareness of the offset facility has long been a challenge due to the perceived complex nature of the product, and this is evident for intermediaries as well as consumers. As such lenders and intermediaries have to be the real driving force of this product.
In the vast majority of cases, clients won’t have even heard of offset never mind realise what it can do. Meaning that it relies on intermediaries to recognise its suitability in terms of the client’s situation and apply these benefits as fit. Inevitably this does take time, although it does naturally lead onto a number of alternative conversations around ancillary products and services to help build longer term relationships and revenue streams.
Even in 2015 offset remains somewhat of a Catch 22 situation. For this product to gain popularity we need more choice, competition and availability. But the main generator of these elements remains demand, and how can product demand grow sufficiently if borrowers don’t know enough about the product in question?
There is nothing wrong with a niche product but offset deserves a wider audience. Let’s hope that the lending community as a whole wakes up to this fact and that the intermediary market gets further behind this concept.
After all in an age when flexibility is a growing necessity among borrowers, arguably the most flexible mortgage offering continues to be sadly ignored far too often.
