When offset and current account mortgages (CAMs) made their mark in the UK mortgage market in 1999/00, some commentators predicted that these mortgages would be niche products only.
In some ways, that has remained the industry’s attitude to these revolutionary mortgage products. It is very difficult to gain industry figures on the product’s impact. Apart from a one-off survey a few years ago, the Council of Mortgage Lenders (CML) doesn’t regularly issue reports on the offset market in the UK.
There are wide variations in the types of offset available. Offset is a generic terms which applies to a style of mortgage. However, each lender is different and brokers recommending offset should make sure that the products chosen fully reflect the best combination for their clients.
Huge potential
Education is required within the industry to maximise offset’s image within the mortgage market. Many lenders offer offset as an additional facility to their flexible mortgage products or offer a simplistic product which allow only savings to be offset against a mortgage. Intelligent Finance (IF) is, however, the offset lender of the HBOS Group, and our offering is one of the most comprehensive in the marketplace.
There is huge potential for the offset market. Datamonitor recently revealed that the offset and current account market grew by over 63 per cent year-on-year from 2000 to 2004 and predicted that these products will account for 30 per cent of all UK secured lending by 2009.
With over 30 lenders now offering some sort of offset or current account mortgage product, it’s clear that the product’s potential has been identified by lenders.
In the absence of industry figures, we can only draw conclusions from what’s happening with our own products. IF’s offset sales performed particularly strongly towards the end of 2005, with Moneyextra.com citing us as the second most popular mortgage lender in October. That strong performance for offset has continued throughout the market in 2006.
Growing success
There are a number of factors behind the growing success of offset mortgages in the UK.
As more lenders have entered the marketplace, pricing has reduced. The features of offset mean these products could be offered at a premium price. In marketing terms, this is the launch part of the marketing lifecycle. When a product is new and different, it attracts a type of customer known as an ‘innovator’. These are people willing to pay a premium price to enable them to have an aspirational product. In electronic terms, these people will have been the first to buy a plasma TV or an iPod.
Innovators in the financial world are people that know their finances. They are well-informed on what’s available and are looking for a product that suits their lifestyle.
As a product moves through the marketing lifecycle, typically more providers enter the marketplace and prices drop. Clients still get the aspirational features but at a lower price.
Education
With a financial services product, one of the key elements to moving through the marketing lifecycle is improved education.
In the first quarter of 2006, IF demonstrated that one-in-three UK households looking for a mortgage could be better off with an offset. By moving to an offset ‘Tracker 95’ product and offsetting their current account, direct access savings and ISAs with IF, one-in-three UK households could save an average of £312 a year on their mortgage.
Using its experience in providing a comprehensive offset product, IF launched a campaign to spread the ‘one-in-three’ message. In addition to advertising, the bank worked with mortgage intermediaries to provide them with the tools to demonstrate the one-in-three message with an offset calculator and sales presenters giving detail of the bank’s research into the marketplace.
Since launch, around 80 per cent of the bank’s mortgage sales have been placed by intermediaries. This demonstrates that education is indeed a key factor in obtaining offset mortgage business.
Sourcing
For intermediaries, one of the key tools is sourcing engines. However, sourcing engines are not particularly helpful for offset product sales as they are driven purely by rates. Although the rates of offset products has fallen significantly since the early days, the outstanding extra features of these product means that they do not always feature at the top of rate-driven searches alone.
The Financial Services Authority (FSA) states that, under mortgage regulation, products should be sold according to their suitability. For some clients, offset products would be far more suitable than the cheapest rate products. Unfortunately, sourcing engines are not built like that, so it is up to the mortgage intermediary to do the digging around and use the appropriate filters to examine offset options for their clients.
Brian Ewing is head of intermediary sales at Intelligent Finance (IF)
