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's 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
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
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's 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
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