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Sun sets its eyes on flexible arena

Sun Bank is calling for the Council of Mortgage Lenders to establish an industry benchmark for flexible mortgages.

The UK banking arm of Sun Life of Canada has approached the CML following the recent launch of its new flexible mortgage.

Marketing manager Richard Farr says research carried out during the planning stage of the loan revealed customers were unaware that some flexible mortgages only incorporate a limited number of flexible features and were at risk of being misled by products because there is no industry standard.

Farr says: “We looked at all the products on the market and the most striking thing we noticed was that many mortgage lenders were offering similar product features, often biased towards open payments. Providers also used different methods for calculating interest and interest was being applied at varying frequencies.”

Sun Bank&#39s research showed that many products under the flexible mortgage banner did not incorporate the six generally accepted principles for flexible mortgages – daily interest calculations, overpayments, underpayments, payment holidays, lump-sum drawdowns and no early redemption penalties.

Farr says it was apparent there was no industry standard defining flexible mortgages.

Marketing director Chris Cummings felt it was time someone addressed this shortfall and wrote to the CML requesting clarification for both consumers and advisers.

Farr says: “We feel there should be a benchmark governing flexible mortgages. We are asking the CML to set up a group covering the industry to establish what the standards of flexible mortgages are so that consumers will know exactly what they are signing up to. We want to see if we can sit down and carve out an actual definition of a flexible mortgage because at the moment there is a large group of products out there calling themselves flexible and this could be dangerous and misleading. If there is a benchmark product, customers cannot be missold anything. They will know what they are buying without having to go through all the small print.”

Sun Bank turned to the CML for help with its campaign as it felt mediation from a recognised trade body would add some weight to the issue but it has not yet had a response.

Farr says the company hopes the CML will form a committee to scrutinise flexible mortgages to establish an industry standard. Sun Bank wants the committee to include regulators, product providers and consumers to ensure all parts of the industry have their say.

Prior to the launch of its flexible mortgage, Sun Bank already had an existing product. The Reflex mortgage was developed in the infancy of flexible mortgages and started in 1995. Like many of the products on the market, the mortgage did not offer all the flexible features available.

Since Reflex was set up, the market has matured and there are now about 40 players. As a result, the company felt it was time to upgrade Reflex. According to Farr, what began as a slight revamp ended with the product being taken apart and put back together again.

Sun Bank&#39s aim was to produce a flexible mortgage that customers could easily understand and claims its new product has every recognised flexible feature.

Farr says there is no restriction regarding the number of features a customer can use and an option can effectively be taken in the first month. Sun Bank offers up to 90 per cent of the property value but customers can borrow less. They can then use any flexible options to upgrade the amount borrowed until they reach the 90 per cent.

Farr explains how customers can use the payment holiday option. The regular monthly instalment will still be paid each month but on receipt of this payment Sun Bank will make an identical payment back into the customer&#39s account.

This may seem like a pointless exercise but Farr says it ensures customers make 12 payments a year and means their credit history is protected. Any money directed back into the customer&#39s bank account then gets added to the total debt on a capital drawdown facility and can continue until the maximum 90 per cent of property value is attained.

Farr denies the company is taking risks by allowing customers full flexibility from day one. He says: “We thought about this carefully and we considered the risks. We are pleased with the product and I think other companies will follow our example within the next six months.”

Flexible mortgages have provided Sun Bank with a second string to its bow. Traditionally, the bank has focused on supplying “individual mortgage solutions” to consumers who do not fit the normal mould, that is, the self-employed.

Farr explains that, rather than using a computer-generated credit history to assess an applicant&#39s suitability like many mortgage lenders, Sun Bank has a team of underwriters which looks at applications individually with an “attitude to say yes rather than no”.

Farr says the company is keen to capitalise on this new direction and activity on the flexible mortgage has not stopped after the launch.

He says: “Work is already beginning on new features. We wanted to launch something fairly straightforward but as time goes forward we will be introducing new features – phases two and three – watch this space.”

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