the Power hour
reaching the stage of their lives where they may want to buy a house, I find myself asking whether I really want to hand over my hard-earned cash to them and their partner or friends. And in eighteen months they go their separate ways and I see half my cash float down the river. Whereas if I could put my cash in an offset and retain control of it I’d be far more inclined to help them that way. We’ve heard brokers say a large part of the population doesn’t have the cash for offset but maybe their parents and relatives do. RS: It’s that gap where you have a bit of money but not enough that you want to give it away. The problem is how much control the lender will want over those savings while they’re in the offset account. DF: I’m sure it’s not an insurmountable problem and just requires the risk people in a lender to think hard about how to get around that issue. I’m not saying we’re definitely going to launch offset together again but it’s certainly something we should be thinking about more carefully, and perhaps devising a new product that fulfils these needs.
oFFset is a comPlex Product, we’re all agreed. how should brokers tackle this when talking to clients? DH: The fact find process is intended to help brokers work out whether offset is likely to be an appealing product in the first place and once you get there you’re well on the road. Customers do understand offset as long as it’s described properly. There are lots of online tools on lenders’ websites that you can show clients to help them understand how their money will work. It’s about identifying
whether it could be an appropriate option and that should be part of the process for every client. RS: This isn’t a mass market product because the crux of it lies in the compounding of interest element. And the stark truth is 50% of people don’t know what 50% is. When you’re playing with this product you have to get your head around the maths. JC: The advice bit is key. Offset doesn’t come under order taking or box ticking. It’s sitting down with someone and having a detailed conversation about when their money comes in and when and where it goes out every month. It’s doing a lot more thorough job than just looking for the lowest 2-year fixed rate.
are there any regulatory hurdles For oFFset? RS: I don’t think the Mortgage Market Review is cause for concern but how the European directive affects offset is a bigger worry. It may not recognise it as a product type that sits within the wider mortgage landscape. There’s also a European aversion to bundled products and a real risk that offset could be interpreted as a bundled product. It is a concern that what comes over the horizon from Brussels doesn’t inadvertently catch what are good products for many consumers. SL: I think there is a question about whether offset could be viewed as a repayment vehicle under MMR. The basis of an offset mortgage is putting all your money into your mortgage to make it work efficiently. Why can’t selling the property at the end of the mortgage be a repayment vehicle? I agree that after perhaps five and ten years there should be measures to check that the
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property is suitable for sale or downsizing but in the if your offset balance is substantial, there is a good chance that it will be sufficient to repay the loan in 25 years. RS: I think the move to appropriateness under MMR will also open up the fact find more, which could influence how often advisers think about offset as a suitable product for their clients.
oFFset is an innovative Product helPing borrowers make their money work harder For them, where might it go in the Future? DH: There are products where self- employed people can offset their business accounts as well as personal savings which is a good way for the lender to bring the client in on another side. MF: I’d like to see offset on buy-to-let portfolios. When you sell a property you want to spread that capital across the portfolio and when you remortgage you can improve your LTVs. I think there may be something there for Paragon or a similar lender to look at. There may be one or two lenders offering something like this but we should be seeing more of it. JC: While it might be complex mathematically and legally I think it would be good to see Sally’s idea of some way of helping families help the younger generation onto the property ladder put into practice. SC: We’ve actually seen clients using it to help them prepare for the future. They’re taking perhaps more than they need now to save for children’s education costs or similar because there’s that uncertainty about how
easy it will be to remortgage in the future. n
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