Copy article

High Street lenders ought to be banned from using the word “innovation”.

Journalist: Justin Moy, Contributing Editor

ended 02. July 2024

Though they're currently falling, the uncertainty of mortgage rates has continued to provide lenders, brokers and borrowers with significant issues throughout 2024. Lenders still allow for product transfers up to 6 months in advance of expired deals, but many are looking to shorten this period to reduce the amount of product swapping, which costs lenders significant amounts and that cost is clawed back through higher rates eventually. Others consider charging fees to swap to cheaper products, especially if rates do start to fall once parliament is settled. Clients struggle to commit to mortgage deals without any clear vision of pricing over the next few years, worried about taking any products now but being stuck on what may be high rates in the next few years. So is this time that lenders looked into the past and developed new versions of products many have only read about in the CeMAP revision, but never experienced? A few ‘old’ examples include :

Capped Rates - a ceiling on the rate you pay, but if rates fall then you benefit. Like a fixed rate with a built-in tracker. No need to keep swapping deals if the outlook is falling rates.

Offset / All-in-One - very few lenders provide Offset mortgages, and those that do are charging quite a premium for this facility. Should more lenders offer this opportunity to combine mortgage and savings, perhaps we re-look at the Openplan / Virgin One account type of arrangement, combined mortgage, savings borrowing and banking into one?

‘Guaranteed’ Fixed Rates - Substantially lower fixed rate deal for a couple of years, but with a compulsory 1 or 2 years on a standard variable rate. You are buying a cheaper rate today, but paying for that privilege in a few years. 

Cashback Mortgages - Discouraging borrowers to finance their home needs the moment they receive their keys, higher rates but cash at a time many will need to furnish their new abode.

Is there a place for any of these products, or perhaps an innovation, that will help borrowers, lenders and brokers over the coming years? Also, what you would suggest be the next mortgage innovation to help inspire the market?

10 responses from the Newspage community

Copy all

Star Quote
Copy

Editor
Simon Bridgland
Director at Charwin Private Clients
Capped and Collared mortgages would be a dapper fit right now, as they give borrowers the best of both worlds. They offer upside protection if rates rise with the added advantage of drops in rate if the variable rate goes south. Lenders however would need to price the drop carefully. Consumers are savvy when it comes to spotting something which hasn’t a hope in hell of dropping. Something the many numbers of part-time, private landlords could use after having kicked into the dust their one or two properties due to the never ending burdens forced on them could be the offset mortgage. Roughly two decades ago Woolwich hit the headlines with their Openplan mortgage which did very well. I feel it only really died a death when interest rates plummeted. Now the rates on offer could help justify this type of account, whilst also being sensibly priced. For the fool hardy, how about a share-based tracker.
Star Quote
Copy

Malcolm Davidson
Director at UK Moneyman
High Street lenders ought to be banned from using the word “innovation”. They haven’t innovated for the past 20 years. New products are now the domain of the smaller lenders and we have seen some great ideas this year already from the likes of Perenna who are an authentic disruptor. I think bringing back capped mortgages would be a great idea for the bigger lenders, as at the moment their offerings boil down to little more than a choice between a two-year fixed rate or a five year.
Copy

Editor
Michelle Lawson
Director at Lawson Financial
Much like the election, mortgages these days are a 2-horse race between a tracker and fixed rate. All products have their place, though, and one of the big voids to be filled is offset. Some lenders offer these but they are merely dabbling. We need some great product innovation and capped rates are great as it gives an element of certainty to both parties. Some new-to-industry brokers will have no experience of some of the products that they have studied for as they haven't been offered by lenders for years.
Copy

Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
Capped rates always sounded like an ideal option for borrowers who could benefit from rate reductions but have a certainty of a maximum cost also built in. However, with the markets so turbulent at the moment, and lenders unable to even take the hit on margin of giving 24 hours' notice of rate changes, no lender is going to want to commit to any rate cap for fear of being caught out. The real question is why these form part of the CeMAP qualification learning material when they havent been seen for over 15 years.
Copy

Editor
Craig Fish
Director at Lodestone Mortgages
Back when we weren't so reliant on technology, and real people had to do real work, the choice of mortgage products available to borrowers was vast. The choice demanded that proper advice was given and a mortgage could truly be tailored to a client's circumstances. You would therefore think that with the significant development of technology and AI that there woud be more products offering more choice and varied solutions to meet people's needs. Alas, no, it seems that the advancement of technology has resulted in less intelligence, less product choice, and lenders that are out only for themselves, offering clients solutions that only benefit their own pockets and don't create competition amongst their peers. It seems that the world of mortgages is going back to the dark ages, not moving forwards. I see a future of renters where lenders have become landlords and stop offering mortgages altogether.
Copy

Editor
Justin Moy
Managing Director at EHF Mortgages
Some of these old-style products may be harder to price in todays market, but many provide sensible answers to the choices that borrowers need to make in 2024, and may relieve the burden of excess processing on lenders and brokers. Borrowers could once choose a Capped and Collared mortgage deal, now they are straightjacketed to a plain vanilla tracker or fixed deal.
Copy

Editor
Dariusz Karpowicz
Director at Albion Financial Advice
There is absolutely no innovation when it comes to mortgage product design in the UK for decades. Lenders only compete with rates and criteria, without adding any special features that could distinguish them and make their offers more attractive for clients. It's high time for a shake-up! Innovation in mortgage products isn't just a nice-to-have; it's essential for helping borrowers navigate an uncertain future. Lenders need to look with a fresh perspective and try new things and offers and don't look back to these tried-and-true models and reimagine them for today's market, offering more flexible and attractive options for clients. Let's see some real creativity and forward-thinking from our high street lenders!
Copy

Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
Today's so-called "innovative" products often leaving borrowers more confused and stressed than they have ever been. Instead of touting newfangled, complex products, why not look to the past for solutions that actually work? Capped rates, offset mortgages, and guaranteed fixed rates are tried-and-true options that could provide much-needed stability. These products, which many lenders have abandoned, could offer the clarity and security borrowers desperately need right now. Innovation should mean creating products that genuinely address customer needs, not just adding layers of complexity. It’s time for lenders to simplify, not complicate, and truly help borrowers navigate these uncertain times.
Copy

Premium
Kevin Bailey
Managing Director at Wessex Investment Management
To overcome uncertainty, lenders need to adopt a more pragmatic long-term view to lending. I am sure the average time people have a mortgage is now well beyond the average 32 years it once was. Lenders should offer long-term fixed rates, i.e. of 30 years plus, and make them extremely portable and adaptable — for example in the event of divorce. Shouldn't be too difficult to arrange a 30 year term at around 4.75% given current gilt yields and Bank of England interest rate expectations. If I'd had that option when I first borrowed over 40 years ago, I would not have hesitated.
Copy

Premium
Mark Hosker
Mortgage Adviser at Cyborg Finance
Our landlord clients are big fans of offset mortgages, and we process several of these every year. This is particularly true in recent times, as landlords have been waiting for the market to settle. There is little competition in this space, but there are still some great products available.

I would like to see the return of Capped Rate to provide more variety, especially now as we anticipate rates to fall but with the added uncertainty of a new government.