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Cat would mark out flexi ground

Will Catmarks on flexible mortgages benefit consumers or will they be influenced into choosing an unsuitable product?

The Government and the Council of Mortgage Lenders are considering creating a Catmark-style benchmark for flexible mortgages. Sun Bank approached the CML last month as it feared that, without an industry standard, consumers could be misled by so-called flexible products that only have a limited number of flexible features.

The proposed benchmark would ensure products incorporate the six generally accepted principles for flexible mortgages – daily interest calcu- lations, overpayments, underpayments, payment holidays, lump-sum drawdowns and no early redemption penalties.

However, London & Country mortgage adviser David Hollingworth does not believe borrowers always need a product which contains these features. He says: “Potentially, you would have a Cat-standard flexible mortgage that says it can do a lot of these things but having a Cat standard does not necessarily mean this is the best product.”

Hollingworth feels the CML could not apply a Catmark to a flexible mortgage without incorporating some of the existing Catmark mortgage standards, especially those relating to variable rates. Placing a Catmark on a product could also have a negative affect on its popularity due to the performance of current Catmarked mortgages.

He says: “Lenders are not able to offer the most competitive rates on Cat-standard products and so people are not getting them. Although they make the terms of the product clearer, borrowers will still look for the best deal. It follows that a Cat-standard flexible mortgage would not be as competitive as a non-Cat-standard product.”

The idea of creating a Catmark for a flexible mortgage without creating one for every mortgage product seems like a disjointed approach, according to Mortgage Express managing director Tim Dawson.

He believes, rather than adding complexity to a product by creating Catmarks, it is more important for a product to be transparent.

“People buying mortgages are intelligent and they need to be able to make an informed choice through having all the details and this is more important than having a Catmark,” he says.

Dawson adds that a few months ago the CML had been looking into the idea of producing a product sheet to set out clearly all the features of a mortgage and feels this would be more use to borrowers than having a Catmark.

He says: “I think the negative effects of Catmarks are that people will assume the product is ok without looking at it in detail. Borrowers need to make the decision themselves and not rely on Government Catmarks to make it for them.”

But specialist lenders, such as Sun Bank, are seen as the ones which will want to create a benchmark. Companies that are not household names will welcome the Catmarks as this will enable them to get their message across to consumers and brokers.

First Active director of marketing Ian Giles says: “We are excited as Catmarks will clear up a lot of confusion in the market about what constitutes a flexible mortgage.

“We believe there are only six to 10 lenders offering products that are truly flexible and the others are claiming flexibility as a way of jumping on the bandwagon.

“We want a level playing field and we do not like lenders that put flexible on the front of their marketing literature when they do not offer all the criteria.

“Catmarks will allow consumers to bypass lenders that do not hit the main bench mark and although choice is a good thing I think limiting the choice will mean that better decisions are made.”


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