View more on these topics

The flexible future

With flexible mortgages becoming an ever more popular choice, it seems hardly surprising that most lenders offer a variation of one sort or the other for almost every kind of borrower.

However, opinion in the market remains split. Some strongly advocate flexible mortgages while others believe that flexibility is a mere marketing gimmick and that actual usage is very low.

Who is to be believed? Last month saw the publication of some useful research into flexible mortgages commissioned by the Office of the Deputy Prime Minister and the Council of Mortgage Lenders. This was conducted last year and involved views from lenders and face-to-face interviews with borrowers.

What is flexible?

As a pioneer of flexible mortgages we recognise the diversity of the market, although it remains somewhat frustrating that a considerable number of products still do not offer overpayments, underpayments, borrow back, payment holidays and daily interest in one.

Who buys flexibility and what do they look for?

The research shows that flexible mortgage holders are fairly typical, with 74 per cent of respondents being couple households, half with dependent children. While the majority are employed (88 per cent), a further 9 per cent secure income from their own business.

In terms of income and wealth, the report suggests that flexible mortgage holders have higher average incomes and nearly a third had savings in excess of £10,000 and one in 10 exceeding £50,000.

Overwhelmingly, the single most important feature is the overpayment facility. This is essential to any flex-ible mortgage and the main focus of the product&#39s promotion. However, borrowers realise that there is more to it than that. Almost 50 per cent of all borrowers rate daily interest calculation to be among the product&#39s most important features.

How have borrowers used the features?

Just over half the surveyed borrowers have used at least one of the range of flexible features. Of these, not surprisingly, the most popular was overpayments, with 32 per cent making them.

The report suggests that the reason why 48 per cent had not used any features was partly because they had only very recently completed. However, it is worth noting that over half of those who have not yet made overpayment plan to do so when they can.

I think, however, that a number of factors have been ignored. First, the sale itself. If bought through an adviser who explains the features and benefits, borrowers tend to use the features. But many so-called flexible mortgages are sold on rate alone, hence there is little understanding or incentive for the borrower to use these – in fact, the report says 23 per cent say they “just ended up with a flexible mortgage”.

The overpayers

Over 90 per cent of those who have overpaid say that they will do so again in the future and the motive is simple – to clear the mortgage debt. More than two-thirds have been overpaying for more than six months and remarkably over 60 per cent have overpaid every month since the start of the mortgage and 87 per cent intend to continue until their mortgage is paid off.

Lump sum investments are less popular than regular overpayments. Many borrowers used work bonuses whilst a quarter moved savings from other accounts. The motivation for overpaying remains the same – to pay off the mortgage sooner.

Despite understanding the benefits of overpaying, 68 per cent still had money deposited in other bank and savings accounts, suggesting a lack of understanding or a desire to maintain a separate savings account. I would also forward a view that borrowers often perceive multi-account management as hard work – yet with a current account mortgage this is not the case.

Other features

In terms of the popularity of the remaining features, borrow back is next, followed by underpayments or payment holidays.

Borrowers appreciate that their flexible mortgage is an excellent place for savings and a cheaper way to borrow. Indeed, customers using their account as a revolving credit facility are more likely to stick with their mortgage in the longer term.



More than two-thirds (69 per cent) of respondents think that flexible mortgages offer a better sense of being in control of your money than traditional mortgages.

Encouragingly, despite a sceptic&#39s view, very few of those surveyed found them complex and difficult to manage and hardly anyone wished they had made a different product choice and over half are very satisfied, while 89 per cent are very or fairly satisfied.

The final verdict

Lenders and borrowers agree that the way forward is flexible. Flexible mortgage holders demonstrate a good understanding of the features and benefits and while there is still room for further improvement, progress is definitely being made.

Just think, who would have predicted that flexible mortgages would be as popular as they are today? Well for starters, we did.


Outside Edge

The prospect of easy money never loses its appeal. The centuries are littered with examples of people taking punts on so-called certainties. Tulip bulbs, railway stock, mining shares, hi-tech companies, there is always something.The point is that if you spot the opportunity to buy in early to what at first may be mere fashion but […]

Matrix offers VCT to beat competition

Matrix Money Management is aiming to get ahead of its competitors by introducing a venture capital trust (VCT) that aims to produce a growing income for investors.The cornerstone VCT will be managed on Matrix&#39s behalf by GLE Development Capital, a venture capital company which has been managing VCTs since 1994. It will initially invest in […]

Leeds & Holbeck offers free conveyancing on base rate tracker

Leeds & Holbeck is offering a free in-house legal services to borrowers taking out its new base rate tracker mortgage. The mortgage, available to customers who apply by October 18, 2002, guarantees to match the Bank of England base rate plus 0.29% until 1 November 2004, giving a current pay rate of 4.29%.Loans are available […]

Predicting the future

You did not make it clear that my letter, published in Money Marketing last week, was sent to you recently after being sent (but not published) in 1999.If, three years ago, a mere IFA could be predicting what has happened with stakeholder, why did none of the boards of the major pension offices not also […]

Planning now for the residence nil-rate band

Graeme Robb, senior technical manager at Prudential, writes about the residence nil-rate band and the advice opportunities it presents for you when tax year-end planning with your clients. On our Planning Matters hub, we considered a widow, Margaret, and a married couple, John and Anne, for whom the residence nil-rate band (RNRB) is influencing planning […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm