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Product matters

Royal Bank of Scotland&#39s relaunch of Virgin One as The One Account is a missed opportunity. It includes a few helpful criteria changes but this tinkering does not address the main defects.

The previous compulsory requirement of having one&#39s income credited to the account has sensibly been dropped although in practice Virgin One had already stopped enforcing this. Although crediting one&#39s income to a current account mortgage makes perfect sense to get maximum benefit from such a product, using a carrot rather than a stick is a much better approach.

Other improvements are a reduction in the minimum loan size from £50,000 to £30,000 and also effectively allowing it to work as a repayment mortgage with an option to have the maximum facility reduced annually.

The major problem with this loan remains its uncompetitive interest rate structure, with rates from 5.1 per cent to 5.95 per cent depending on loan to value and no fixed or discount rates. All the advertising is based on overpaying and hence shortening the term and consequently paying less interest.

However, anyone who only wants to do that and makes little use of all the flexibility will be better off with a mortgage at a much cheaper interest rate. The other point that needs addressing is the banding. Perhaps having seven interest rate bands is an attempt to get in the Guinness Book of Records but most lenders find two or three quite adequate.

For this product to succeed, RBS needs to address these two points. Perhaps its new flexible loan is the start of this process.

Ray Boulger is senior technical manager at Charcol

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