News Review: Products


Low rates and offset offer good options by


Rob McCoy, senior product and communications manager, PMS


Amidst increasing economic uncertainty, market volatility and falling confidence, one of the few things that could be considered almost certain was the Monetary Policy Com- mittee’s decision to leave the Bank rate unchanged at 0.5% at its September meeting. The growing prospect of sluggish UK and global growth has diminished the probability of interest rates moving higher anytime soon – despite infla- tion poised to flirt with 5% as utility price rises begin to bite.


Business surveys show a de- teriorating picture for manu- facturing, construction and service sectors as demand weakens at home and abroad. However, despite the darken- ing outlook for the UK, the MPC kept interest rates and the asset purchase scheme unchanged at the September meeting. It will be interesting to see how this develops.


Fixed support Lenders are continuing to support advisers with low, short-term fixed rates such as those from Accord Mort- gages, Northern Rock, Skip- ton Building Society and The Mortgage Works. These types of products are all typically sub 3% and have loan to value limits of up to 79%. In the last few weeks we have seen some very competitive 5-year fixed rates at sub 4%. Again Accord Mortgages, Northern Rock and Nationwide have been


Savings Interest Rate Comparision Savings Account – paying 1.0%


Offset Mortgage Savings Pot – 3.29%


very aggressive at trying to at- tract customer on their longer term fixed rates. given the current level of


these types of rates, it is cer- tainly worth contacting clients who might still be on the ex- isting fixed rate that they took out three or four years ago and so will be paying 5% or 6%. The big obstacle for many is the early repayment pen- alty charged if you ditch your current loan. often, these are calculated as a percentage of the outstanding loan, and can easily be 3% or more. In many cases the penalty will be sev- eral thousand pounds.


Savings Some people will definitely save by switching to a cheap- er mortgage, even taking the penalty into account. But for others, the cost of escap- ing their current deal will be greater than the potential sav-


Tax Banding 20%


Gross Net


0.80%


Gross* 4.11% Net


*The notional interest earned on the offset savings pot at 3.29% is net of tax.


ing. As a rough rule of thumb, if the lock-in is two years or more, there is a good chance that switching will stack up fi- nancially. If it’s less than a year, it is less likely that you will gain. don’t forget to factor in another potential cost associ- ated with many new deals: the product fee. And remember that if you switch from a fixed rate to a variable one, and in- terest rates start to go back up, this will of course eat into any savings that the client may have made.


Offset offsetting seems to be the fla- vour of the month at the mo- ment with Woolwich, Abbey and others investing heavily in marketing drives and low rate products which are exhort- ing the benefits of opting for offset mortgage, especially for the higher rate tax payers. The table below shows how Abbey


Increase FTB Purchase


Remortgage BTL


BTL Remortgage 1174Total


Direct 847 978 855 64 74


2818 Source: TrigoldCrystal 07.09.11 products Residential Increase


(decrease) on previous


Term 5 years +


0-3 years 3105 3-5 years 186 164


1278 1658 657


Increase


(decrease) on previous


605


1420 547


534 167 40


BTL Increase


(decrease) on previous


-67 -51 -10


252 29 29


Increase


(decrease) on previous


Fixed month Tracker month Fixed month Tracker month 1232 -780 -311


-137 -3 -3


Source: TrigoldCrystal 07.09.11 products 12 MoRTgAge INTRodUCeR OCTOBER 2011


(decrease) on previous month 47


174 46 4 4


Intermediary 2048 3193 3293 1070 1100


10704


is demonstrating how clients can make their savings work harder, especially those lucky, or unlucky enough, to be a 50% tax payer. Using a flexible offset mortgage can be a tax efficient way to save money. Your client doesn’t earn any interest on the money in the savings pot because it is being used to offset the mortgage debt, and so, as they don’t earn any interest, they don’t pay any tax on that savings pot. This can result in some significant tax savings. I have always felt that off-


set products are a tough sell to clients, but over the year, the lenders have produced some great tools, calculators and marketing aids to make it easier for advisers to sell and for clients to understand. If you haven’t looked at offset recently, then now is a good time to do so.


The product information below was the number of products as displayed on TrigoldCrystal’s prospector system and includes any broker exclusives via distributors/networks as well as direct products from those lenders who supply them to TrigoldCrystal.


Increase


(decrease) on previous month -423 -595 -617 -163 -163


Total 2895 4171 4148 1134


13522 40%


1.00% 0.60% 5.48% 3.29%


50%


0.50% 6.58%


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