Citing ERCs of 6 per cent, which tie borrowers into the deal, and the rate shock customers face once the discount ends, an industry source voiced concern over the potential impact such a deal could have on customers’ financial situations. Launched on 6 November, the product has a discount of 2.40 per cent for one year, with the customer tied in for two. The lowest rate was 3.95 per cent.
But Clive Wilson, head of mortgages at Beacon Homeloans, defended the charges as standard in the marketplace. “It isn’t a product that suits everyone. It is down to the intermediary to know their client when recommending the product. A client should only take a high discount if they knew they were getting a substantial pay rise at the end of the year or their circumstances were changing. It is a transparent policy and not hidden.”
Wilson pointed out only one lender provided a deep discount with no overhang, with five other lenders having ERCs over three years. He added: “In comparison with the market, we are competitive.”
Darren Pescod, managing director of The Mortgage Broker Ltd, commented: “The ERC is pretty standard in all fairness, but as a company we tend to steer clear of deep discount products. They sound good, but clients get hit with much higher costs after a year and so, such products only work for clients expecting a large increase in income in the future. We would rather advise a slightly higher rate, so costs stay stable over the two year period. The appeal of these products is in the marketing, so that when you source products it will always be top of the list.”
