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Self catering

Flexibility in the self-cert mortgage market means different things to different lenders and how much flexibility a client needs is an important point for IFAs.

Bristol & West senior product manager Bob Stan-worth says: “The need for a flexible self-cert mortgage depends on the individual and, if an adviser is used, how the issue is probed during the fact-find. Many products are available with some degree of flexi-bility without any rate consequence. If people require greater flexibility, there are options available. I think it is the flexibility to deal with the unplanned that is the feature that people buy.”

Stanworth concedes that rates can be higher on fully flexible deals but says this is fair as lenders potentially have more admin costs.

He says: “In this case, lenders are not generally protected by an early repayment charge. They have the same acquisition costs for the mortgage and face greater uncertainty about the length of time that they will collect interest and on what balance.”

Some lenders think that providing one fully flexible self-cert deal is enough while others make features available across their range, from fixed rates to base-rate trackers. Some deals may be fully flexible while others may include one or two features that the lender thinks are most popular. Some lenders do not offer flexibility on self-cert deals, which Stanworth attributes to credit and risk issues.

Platform Home Loans has a flexible mortgage option in its self-cert range – a flexible lifetime tracker at 1.44 per cent above the base rate. It allows overpayments, underpayments, payment holidays and lump-sum withdrawals and interest is calculated daily.

Bristol & West offers an offset facility in its product range but Platform does not offer this degree of flexibility.

Platform head of marketing Paul Hunt says: “People who have irregular income streams are perfect for flexible features. For example, they may be paid a bonus every quarter so they can make overpayments and if they are not employed for a couple of months or they are not getting enough work, they can make underpayments or take payment holidays. Although we have seen a steady increase in our self-cert business, we think one flexible option is enough. We think the tracker suits the majority of self-cert borrowers. A small proportion of borrowers opt for flexible features but the percentage who use them is still quite low.”

Larne Mortgage Centre partner Ken Sives believes self-cert lenders have provided enough flexibility for most borrowers. He says: “Borrowers can often overpay by up to 10 per cent a year without penalty, which is sufficient. I do not think most people have the sort of money to throw at overpaying their mortgages, especially if you look at the level of house prices. I think 90 per cent of the population would not use the all singing, all dancing flexibility and they might have to pay a higher rate for that.

“Generally, I find people take a deal for two years that does not have flexible features and if they have enough money to overpay, they put it in an Isa to make themselves a bit of money. They can then move the mortgage after two years.”

John Charcol product specialist Ash Sharma says more concerned about the interest rat than flexible features.

Sharma says: “Rather than worry about features, they want the cheapest rate or a rate from a lender who will accept pure self-cert.”

But Birmingham Midshires specialist lending product manager Nicola Swain says: “Flexible features provide peace of mind to many borrowers but their use and popularity varies greatly and is as diverse as the circumstances that our customers experience.”

UCB Home Loans managing director Keith Astill says: “People are more savvy about their finances and understand the benefits of making overpayments, such as paying off their mortgage early and using their mortgage to suit their changing working patterns.”

He estimates that 90 per cent of UCB’s customers have flexibility on their mortgage. “There are often limits on the maximum amount that a customer can overpay, particularly on fixed rates, as the margins and pricing are worked out when the lender buys the funding. Trackers are variable and the rate can fluctuate so there is a little more leeway,” he says.

Hunt says: “The interesting thing is that nobody has offered flexibility on a non-conforming basis and the question is whether it is viable? I am not sure it is suitable for that market. These people have had credit problems and have possibly defaulted so they might not be the right type of borrower.”

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