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New lending

Paul Thomas asks if innovative deals being offered in the mortgage market shows that lenders are willing to look further than plain vanilla products

We are starting to see a trickle of innovative products coming to the mortgage market but will this lead to a noticeable trend?

Last week, Barclays announced a link with Bovis Homes with the building contractor agreeing to guarantee mortgages taken out by its customers and the bank offering 90 per cent loan to value mortgages to boost demand for new homes.

HSBC last month launched a mortgage allowing customers to fix a proportion of their mortgage while the rest of the loan tracks the Bank of England base rate for the life of the loan. Also, last week, Platform introduced a mortgage solely for joint applicants, offering them more favourable rates, as their research shows lower default rates on joint applications.

Other lenders, while not introducing innovative new products as such, have introduced mortgages and mortgage ranges with higher LTVs.

Skipton off-ered a 95 per cent loan last month and The Mortgage Works increased its core buy-to-let mortgage range LTV to 80 per cent.

So, with a host of new innovative products and a favourable loosening of criteria, it begs the question of whether lenders are weaning themselves off solely offering vanilla products and is the marketplace witnessing a new trend in product innovation?

Intermediary Mortgage Lenders Association executive chairman Peter Williams says lenders are aware of the need to encourage homeowner-ship. He says: “It will be limited given tight funds and MMR still to come. But we have the Barclays and Bovis initiative and I am aware of other launches to follow around FTB.”

Email Mortgages chief executive Michael White says innovation is vital and that lenders, in the current market conditions, recognise the value of these products.

He says: “I think the market is not just about plain, vanilla products. It is about creating something that has some attraction to it and, at the same time, has a commercial benefit to make it work.

However, White adds that there are no longer any truly innovative products, simply a rein-troduction of old ones. But he does advocate bringing back some of the old favourites which worked in the past.

He says: “We need to go back and have a look in the bag, see what was working and bring it out again.”

London & Country head of communications David Hollingworth believes the market, in its current fragile state, does not need product innovation but simply more products and better pricing.

He says: “At the moment we have got a market where just getting a few more products and better pricing on those products is really what everyone wants. At the moment, we are in a slow period of recovery and people just want to see a bit more competition and more products.

“It is unrealistic to expect lenders to be spending a lot of time developing a product that is quirky when what we need more of is main-stream products.”

The Council of Mortgage Lenders says product innovation is not the solution for the mortgage market’s ills.

A spokeswoman says: “The question is, in terms of scale, whether it will do much for the market. At the moment, the overriding constraints affecting the market mean that innovation – while very important and very helpful – will not prove to be the market solution that will help us meet the needs and demands of borrowers who would like to come into the market.”

Over the past couple of months, there have been new lenders entering the market. But while they may be small in terms of their lending capacity, could they provide the injection of innovation that will ultimately offer borrowers more choice?

Savills Private Finance managing director Mark Harris says small players could launch innovative products as a means of standing out in a sea of bigger competitors.

He says: “Generally, innovation comes from smaller lenders to begin with. If you’ve got a comp-etitive market and you’re a small lender, you can’t compete on price. So you have to ask, how can we do something different?”

Similarly, Association of Mortgage Intermediaries direct Robert Sinclair says: “New entrants might want to distinguish themselves from the crowd while bigger lenders are likely to focus more on mainstream products.


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