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Categories:Mortgages

Game, offset and match

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We all love a good offer, the opportunity of a discount or something that gives us more bang for our buck. Many hours are spent trawling the internet, using sites such as MoneySavingExpert.com, voucher code websites and a host of tools to save ourselves some cash. The internet has also opened the gateway to a raft of information and resources to educate ourselves on almost anything.

There is no longer any excuse not to know, or be able to find out, about any product, offer or service that could help our financial wellbeing. With the squeeze on consumer finances resulting in people having to be more financially savvy than ever, this is no bad thing.

Barclays recently embarked on a national campaign to raise awareness of offset mortgages, at the same time highlighting the lack of knowledge that continues to surround this product 10 years since its introduction to the UK mortgage market.

This lack of awareness could be because the product is perceived as complex, despite the amount of research material at our fingertips. The fact is it is much simpler than people realise.

Equally as concerning as this lack of awareness is the number of intermediaries who are unsure how best to use the offset facility, unaware of what proportion of clients could benefit from it.

Why is offset still being undersold? Is it the fact that it is time-consuming to advise on? Is it because clients are unable to grasp the concept? Do firms’ client bases have insufficient savings to make this product work or is it the perception that intermediaries do not earn enough from offset?

The market share for offset is less than 10 per cent but Council of Mortgage Lenders’ figures from the second quarter of 2011 show an 18 per cent increase in offset sales, albeit from a low base.

This could indicate a lack of confidence is holding the product back - either brokers not being confident about understanding and selling the product or consumers lacking confidence in understanding how it works and its benefits.

As an offset provider, we have to take some responsibility for this and education remains a key component in our future strategy. Barriers remain to offset and understanding is a key element in this.

The truth is that many people do not realise that it is instant access savings, that if they are a 40 per cent taxpayer they would have to be earning the equivalent of more than 5 per cent interest to get the equivalent rate on an instant access account.

Such deals are simply not available within the low interest rate environment, so for intermediaries who have clients with any level of savings, offset is a product well worth investigating.

This can be a time-consuming process and advisers have to be prepared to put in the necessary legwork to advise comprehensively in this area. However, this extra time is more often than not rewarded through increased client retention and more referrals as a result.

Not all clients will get to grips with the concept and it will be the more financially savvy that really benefit. Visuals, figures and statistics are important when advising on offset and highlighting potential savings and the lowering of mortgage terms in black and white can help seal the concept.

This depends on individual databases but it is something intermediaries ought to know and, if not, perhaps there is a case for suggesting they do not know their clients as well as they should.

In the days when two to three-year deals with good procuration fees were being turned around with ease, advising on offset did not look so good on the balance sheet. But we all know those times are long gone and business models have had to shift to a more holistic approach to embrace a range of ancillary products and services.

Offset leads to regular conversations regarding savings, investments and insurance in addition to a whole range of future financial requirements, all of which organically help strengthen any client relationship.

Client retention is the Holy Grail in the modern mortgage market and making a client’s money work as hard for them as possible is a step in the right direction to achieving this. To cement this kind of relationship it is not enough to just advise on a product and then leave the client to it. The quality of after-sales care is vital to sustaining and building on the initial contact.

Offset is a product that needs regular reviews and this is a positive not a negative. Regular reviews mean frequent opportunity to review a client’s financial standing and keep abreast of changes in circumstances, whether it is a wedding, starting a family, a new job, the maturing of an insurance policy or even an inheritance. A more pertinent question might ask if firms can afford not to include offset in the advice process.

Offset is still, quite rightly, heralded as the most tax-efficient product on the market and helping clients to find the most efficient way of managing all their finances holistically will be key to success in the current marketplace.

Despite initially being perceived as a product only for wealthy clients, the popularity of offset has risen among first-time buyers, remortgagers, contractors, small business owners and the growing legion of self-employed people who have long been advocates of offset.

As ever, offset will not be for everyone but not fully recognising its benefits could be providing a disservice to any intermediary firms’ valuable client bank. The bottom line is that for the right client in the right scenario, offset can shave years from mortgage terms and thousands of pounds from interest repayments. For any client wanting to make the most of their money, that is an offer they can ill-afford to ignore.

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