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A cooler summer is the hot forecast

Do you think Catmarked mortgages will enjoy high sales?

SK: The way the qualification criteria have been drafted,
I think it is

highly unlikely that Catmarked mortgages will sell in any volume.

There is little or no incentive for lenders to maintain the current large

“giveaways” on a Catmark. I believe Cat-qualifying mortgages will become a

starting point for borrowers when looking for a mortgage but they will

qui^_ckly realise that by add^_ing, say, an arr^_angement fee or selecting

a product that has redemption penalties within the benefit period, it may

well give them a much more
competitive rate option.

Borrowers will have to work out for themselves how important each

individual component of Cat qualifying criteria is to them and then choose


PJ: It depends. The success of Catmarked mortgages will depend on the

pricing of the products. Cat mortgages are designed to offer better

long-term value than short-term discounts currently in the market.

NH: Not necessarily. Chel^_ten^_ham & Gloucester&#39s Cat^_marked mortgage is

likely to appeal to first-time buyers who are seeking the reassurance that

a benchmarked product will provide. I believe more seasoned buyers will

prefer to opt for non-Cat-standard loans that are more competitive in terms

of headline rate.

Should brokers be paid for advising on Catmarked mortgages?

SK: About half of all mortgages sold are originated via intermediaries.

With the income available to brokers from mortgages being squ^_eezed all

the time, one has to wonder whe^_ther Catmarked mortgages will be promoted

much if, by definition, they prevent a broker charging a fee.

It is beyond me why a broker cannot charge for professional advice. It

seems odd for the Gov^_ernment to propose Cat standards as “good” but on

the other hand to disincentivise brokers to promote them. I think the

Treasury has focused too much on the worst-case scenarios that have

occurred with fee charging on mortgages when they thought this element up.

PJ: Lenders can continue to pay procuration fees for Cat mortgages and so

brokers will still receive some income for advising on these loans.

NH: Customers visit brokers to benefit from their advice, which is

valuable, irrespective of which mortgage product is recommended. It is not

fair or reasonable to expect brokers to dispense that advice for free.

Will the average consumer mistakenly see Catmarked mortgages as endorsed

by the Gov^_- ernment and therefore likely to be the best?

SK: The Government, by promoting Catmarks, will inevi^_tably lead

consumers to bel^_- ieve they are endorsing them. The message so far is

very simple – “Catmarks are good”. This will need to change to emphasise

the benchmarking aspect as opposed to an implied “superiority”.

PJ: Cat mortgages are des^_igned to provide a fair, simple product which

will give value for all borrowers, including existing customers. On

balance, for some customers, it could be the best long-term value mortgage

for them.

NH: There is certainly potential for this. We shall be placing emphasis on

the fact that a Catmark is simply a benchmark of specific features against

which other mortgage products can be compared.

A Catmarked mortgage should be approached in the same way that Catmarked

Isas have been, that is, they are feature-rich but not necessarily the best


Do you think the cooling down in house price inflation will continue?

SK: House-price inflation indices are notoriously variable. We will need

to see a sustained series of results showing a slowdown before we can read

too much into this.

However, the last four consecutive base rate inc^_reases are bound to have

had an impact, together with the slower growth in wage inflation versus

house-price inflation. I think therefore that we will see a gradual

levelling off as the year progresses but there is nothing to suggest that a

fall in real terms will occur as the economic situation is wholly different

to the one that exis^_ted in the early 1990s.

PJ: In March, UK house prices fell by 0.4 per cent and the annual rate of

house price inflation was 13.5 per cent. These figures show that the recent

interest rate rises may be beginning to slow the und^_erlying pace of house

price growth.

NH: Mortgage rates are low compared to the late 1980s, employment is

strong and demand is still outstripping
supply so house price inflation

should remain positive, alth^_ough probably below the levels seen over the

last six months.

Do you think the Cruickshank report&#39s recommendation for another benchmark

in addition to Cats will confuse consumers further?

SK: There can only be one Government-approved benchmark for any particular

product. Additional benchmarking will only confuse as it is inev^_itable

that a product will qualify for one benchmark but not the other and vice


Some of the Cruickshank report recommendations are covered by the proposed

Cat standards and I think the industry should get on with implementing

these but have an eye on evolving them as the market changes over time.

PJ: Cat mortgages have been designed to provide a benchmark which the move

to statutory regulation will develop. There is only room for a

benchmark although the Treasury have always accepted that the Cat

continue to develop.

NH: Yes. We need one benchmark, in the same way that we need only one

regulator. When you start asking people to compare benchmarks with

benchmarks you end up with customers more confused than the electorate

about the London mayor.

At C&G, we have always remained focused on maintaining a simple philosophy

that results in straightforward products which are transparent and easy to

understand. As far as possible, the industry should remain committed to

this type of approach.

Given that the cost of mortgage payments is going up with the abolition of

Miras, do you think remortgaging will become increasingly popular?

SK: For anyone paying the typical standard variable rate of 7.74 per cent,

the removal of Miras has caused an inc^_rease in payments of almost 20 a

month. Put another way, on an average 60,000 mortgage this is the

equivalent of
a rate rise of 0.38 per cent. Add this to your starting

rate of 7.74 per cent and the resultant 8.12 per cent rate may well

encourage people to think about switching.

However, I do not believe the annual extra cost of the abolition of Miras

is eno^_ugh to cause a remortgage boom. Borrowers will have to seek

significantly gre^_ater savings than 240 a year as the cost of remortgaging

needs to be factored in when considering switching lender.

PJ: The level of remortgage activity will remain broadly static and it is

unlikely that the current level of discounting can be sustained in the

market. Remortgaging will remain in the market but Cat will ensure better

long-term value both for new and existing mortgage customers.

NH: Customers are usually prompted to change lenders if they want to

release equity or are dissatisfied with their current service or deal. The

abolition of a tax break which has had its benefit gradually eroded over

recent years will not, in itself, cause homeowners to rethink their

mortgage arrangements.


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