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Incentives welcome, but all borrowers really want is a good rate – analysis

  • 15/02/2017
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Incentives welcome, but all borrowers really want is a good rate – analysis
Brokers have said that while mortgage incentives can be welcome, lenders must avoid simply offering gimmicks.

Incentives have played a part in mortgage deals for a long time, with varying results. While cashback deals have stuck around, some lenders have experimented with more unusual offerings.

In 2014 Lloyds offered a free iPad alongside mortgages, while West Brom building society took things to the extreme with the offer of a free car to borrowers – a Rover 25 to those going for its ‘Brum Brum’ variable deal.

This week Barclays has hit the headlines with a mortgage deal offering to pay the Stamp Duty bill for first-time buyers. But just how valuable are these incentives? Do borrowers actually appreciate them?

Incentives need to add value

David Hollingworth, associate director at L&C, said that as rates continue to fall, lenders are having to consider other ways they can adapt their product range to make them more appealing and to stand out from the competition.

He added that incentives where borrowers can clearly put a value on what it is worth, so that they can work out exactly what they are getting, tend to more popular.

He continued: “When you get to the point of the incentive being a gimmick, I think it may actually turn people off. People are just looking for a good value mortgage rate, and if part of that value comes from reducing set up costs, then great. If it’s just something that is nice to have, then it won’t attract many.”

Nothing but bells and whistles

Martin Stewart, director at London Money, agreed, suggesting that while the Stamp Duty assistance from Barclays was nice, it was really just “bells and whistles”.

He continued: “The chances are most first-time buyers have their deposit and buying costs saved already. The issue is whether they are overpaying for the mortgage as a result of taking the incentive.” He concluded that the market doesn’t need money thrown at it; what’s actually needed is for lenders to review their criteria.

Lessons from insurance

Alan Lakey, partner at Highclere Financial Services, said that while borrowers are primarily motivated by rate rather than incentives, the Barclays offer would “certainly appeal to some purchases”.

He continued: “The mortgage market might learn a trick from the insurance world.  How about an interest rate which can reduce if the property value increases? It might eat into profits but would certainly increase brand loyalty and better reflect the true risk.”

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