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Homeloans hold key to future

Mortgages will become the most important financial services product and IFAs neglecting this area will find themselves squeezed out by other aggressive players, such as banks, building societies and supermarkets.

Far-fetched? Nick Baxter, partner at Bridge Baxter, the High Wycombe-based IFA company, thinks not. As spokesman for IFA Mortgages, part of the IFA Association, he believes intermediaries ignore the potential for selling mortgage products at their peril.

"I believe the mortgage is the key to a person&#39s financial advice," he says. "It is the biggest investment a consumer will ever make and it is usually their biggest monthly outgoing. Whoever holds the key to the mortgage holds the key to the rest of the advice."

He believes IFAs have been reluctant in the past to arrange mortgages for clients because they are time-consuming and not particularly cost-effective.

"In the past, intermediaries tended to say to clients: &#39Go and sort yourself out a mortgage and we will set up the life cover for you.&#39"

Not any more. IFAs have until the end of next month to sign up to the Council of Mortgage Lenders&#39 new code of practice. From May 1, lenders will be told not to accept business from anyone who has not signed up.

A growing number of IFAs have recognised the potential in securing clients via mortgages and some practices now have dedicated mortgage specialists, often ex-building society employees.

Baxter says: "Safeway, Sainsbury and Tesco are likely to have a range of mortgage products in future. They are also moving aggressively into other areas of personal financial services. They are under powerful pressure from the banks, which are saying that a strategic joint venture into mortgages is a tremendous business opportunity.

"Meanwhile, clients need help because the products are complicated and it is difficult to compare them."

Baxter estimates that the average homebuyer might look at 12 products, whereas IFAs have the software to examine more than 4,000 different mortgage products.

He says: "Advice from estate agents is not usually independent because they tend to be tied to one life company for the repayment vehicle. Meanwhile, the databases supermarkets have built up with their loyalty cards mean they are able to cherry-pick the best customers."

There is also growing demand for fixed-rate mortgages, and it is here that customers may become confused by the small print and potentially swingeing redemption penalties.

Although 60 per cent of people who currently apply for a mortgage opt for the fixed-rate option, only 25 per cent of homeowners in this country already have a fixed arrangement. Most still pay interest at a variable rate on their loan.

Mortgage lenders report a rise in demand for fixed rates because borrowers are concerned about increases in short-term interest rates. Although the Bank of England decided not to raise rates a fortnight age, most economists believe there will be a further rate rise in the summer before levels begin to fall again, especially since it emerged that the monetary policy committee was divided over what action to take at its last meeting earlier this month.

Nevertheless, most forecasters expect long-term interest rates to fall as Britain becomes more closely joined to continental rates following European Monetary Union. However, Kieren Barr, UK economist with Deutsche Morgan Grenfell, still believes rates will rise in the short term to 7.75 per cent this summer before ending 1998 at around 7.25 per cent.

As the result of uncertainty over interest rates, growing numbers of homebuyers are choosing to take out fixed-rate mortgages and more and more lenders are wooing them with highly attractive deals for what they call long-term fixes.

New borrowers are coming to IFAs looking for guidance. One of the problems for clients is that they find it difficult to compare deals because of the small print included in some of the best offers.

For example, fixed mortgages may offer very attractive initial rates, but when the loan reverts to a less attractive variable rate and the borrower looks to remortgage, redemption penalties could be prohibitive.

Britannia, in conjunction with Independent Mortgage Collection, a subsidiary of Private Label which was demerged recently from John Charcol mortgage brokers, has just launched a new seven-and-a-half year fix. IMC says this term was chosen because research has shown that seven years is the average time people stay in their homes before moving.

The fixed rate is 6.99 per cent for buyers with a deposit. For buyers who want to borrow 100 per cent of the value of the property, the rate is set at 7.49 per cent to July 1, 2005. The mortgage is available from Verso, the arm of Britannia which sells exclusively through brokers and IFAs.

Further deals will be available over the coming months, including a capped mortgage from Bradford & Bingley, a four-year fixed mortgage with no redemption penalty from Bristol & West and a long-term discount with cashback from Halifax.

Private Label designs the products and acts as a distribution company, and IMC is a retail brand used to market the products. None of the four lenders sells the products at its branches.

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