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's 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's 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”.
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.
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's 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.