Pricing an issue for Accord offset
Accord Mortgages - Offset Five-year Fixed
Type: Offset fixed rate mortgage
Fixed rate term: Until January 31, 2017
Fixed Rate: 4.79%
Minimum loan: £30,000
Maximum loan: Up to 85% of valuation subject to a maximum of £750,000, up to 75% of valuation for mortgages on an interest-only basis
Income multiples: Based on affordability
Conditions: Available through selected intermediaries
Flexible features: Unlimited overpayments, underpayments, payment holidays, interest calculated daily, offset facility
Arrangement fee: £900 completion fee plus £95 booking fee
Redemption fee: 5% of the original loan in the first three years on full redemption only, 4% in year four, 3% in year five
Introducer’s fee: Refer to lender
This five-year fixed-rate offset mortgage is available for loans up to 85 per cent of valuation to a maximum of £750,000. Up to three savings accounts can be linked to the mortgage. The savings are then offset against the mortgage. This means borrowers do not earn interest on their savings, but instead will pay a reduced level of interest on their mortgage.
There are three offset options. The default option, option two, uses the offset savings to reduce payment in future years. Borrowers do not pay off their mortgage earlier but should see their payments reduce each year. Option one differs in that offset savings are used to reduce the mortgage repayments immediately, but again, the mortgage will not be repaid earlier than the contractual term. Finally, option three enables offset savings to be used to pay off the mortgage earlier but the monthly repayments will not reduce.
Accord does not insist on client’s opening a current account or taking out a credit card with the firm. Neither does it require borrowers’ salaries to be paid in to any of the savings accounts or for a minimum deposit to be paid in to the savings accounts.
Discussing the lender’s approach to the offset market, London & Country Mortgages head of communications David Hollingworth says: “Accord consistently offers offset products across its range and at only a small premium of 0.2 per cent to its standard products. With such a narrow margin on the interest rate it really opens up scope for more borrowers to take advantage of the benefits of offsetting. That is particularly true in a climate where customers are seeing little return on their cash and are more eager to look at ways to cut their debt level.”
Hollingworth thinks that it is good that Accord offers offset functionality on all its fixed rates. He sees the fixed-rate area of the market as a product sector that can be underserved in the offset market.
Focusing on the details of the 4.79 per cent offset five-year fixed, Hollingworth says: “This product carries a £995 fee and no further incentives. But the range carries various rate, fee and incentive combinations that should cover most borrowers’ requirements,”
Turning to the less appealing features of this deal, Hollingworth says: “The downfall of the product has to be on pricing. When you look at the very lowest straightforward five-year fixed on the market at 85 per cent LTV, Chelsea Building Society offers a rate of 3.99 per cent, with an admittedly higher fee of £1,495. It even offers an offset version at 4.09 per cent.
“Yorkshire Building Society offers a five-year offset fixed rate at 85 per cent LTV at a rate of 4.29 per cent with a £995 fee. The fact that the Yorkshire Building Society is the parent of Accord and the Chelsea Building Society brands makes the pricing structure even harder to comprehend,” says Hollingworth. He adds that in the past Accord has generally offered something a bit different to its parent company. “But here it is lined directly against other brands and falls way short with absolutely no differentiation,” says Hollingworth.
Summing up, Hollingworth says: “It’s a shame to be so critical of a product from a lender that generally delivers so well but in this case what could be a very useful product is being smothered by its parent company.”
Suitability to market: Average
Competitiveness of rate: Poor
Adviser remuneration: Good