I have a problem with rate tarts because they threaten the mortgage pricing model. As unpopular as the fact may be, new product pricing has for decades fundamentally relied upon consumer inertia. These tarts might just screw things up for us.
Imagine, then, how insulted I felt when the general manager of a well-known building society recently accused me of being a tart and, worse still, a rate tart. He was somewhat surprised that, for my new mortgage, I was deliberately staying loyal.
“I had you down as a bit of a rate tart” he said with his wry smile, probably pleased that I was contributing to his company pension by staying with the society but certainly surprised. I thought about this and eventually realised that it was a back-handed compliment. Regarding me particularly as a broker, if not an astute consumer, he had assumed that I would trawl the market, apply a rigorous process of product analysis and finally strike a deal with whoever would offer the very best terms without a hint of sentimentality or commitment or loyalty. Yes.
He was subtly letting me know that he regarded me as a discerning customer who exercised his right to switch lender at the drop of a hat in order to stay ahead of the game, wasn't he?
Some say that rate tarts are the consumers' champion – smarter than most and keeping the market on its toes, clients who have effectively outlawed those products with deep discounts followed closely by their loaded rates and who have seen the back of those products with extended redemption penalties.
But I can't agree. There is no such thing as a free lunch, yet rate tarts want to have their cake and eat it. They expect lender after lender to role out the red carpet, offer them a loss-leading deal, then allow them to walk away when the incentive rate period ends.
I had no problem with extended redemption penalties – there is absolutely nothing wrong with making a commitment to stay with a lender for a certain period in return for a fantastic non-profitable product being made available for an initial and agreed period at the start of the relationship.
The key factor is transparency – clients must, of course, be made fully aware of their obligations to stay with a lender (or face financial penalties) prior to signing up. But with the virtual disappearance of extended redemption penalties and the growing movement of rate tarts, these fantastic mortgage products have receded. They are probably in terminal decline in fact.
Peter Beaumont, sales & marketing director at Mortgages plc, a self-confessed rate tart, disagrees with me. “I have no problem with it. If someone decides to replace their term insurance with a cheaper provider, no one bats an eyelid.”
He goes on to robustly def-end the tarts and turn the tables. “Don't blame consumers for minimising the level of their outgoings, look at the lending community encouraging it in the first place, in its scramble for market share.” I struggle to disagree with his clear logic.
I accept the basic point that consumers have every right to find themselves the best deal and to do so repeatedly. I am not attacking democracy, I am just pointing out that the actions of the few, can fundamentally mess things up for the masses. We have helped literally thousands of first-time buyers to seize deeply discounted, non-profitable mortgage deals, fully aware that the fantastic initial rate will later shift upwards.
Rate tarts bring about pressure on margins and potentially a major market discontinuity. Some of those wonderfully priced, innovative deals could soon cease to exist because the tarts want too much jam.
Robert Clifford is chief executive at mortgageforce