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The future is about flexibility

Borrowers are becoming more educated and choosy when it comes to mortgages – but they still rely on IFAs to close the deal.

The internet has made it easier for borrowers to research different types of mortgages and they are now looking for products that cater for specific needs. But they are still turning to IFAs for advice before making the final decision and the lenders are becoming wise to this.

Flexibility is the feature borrowers are increasingly asking for and the market is shifting in this direction as a result.

More and more lenders, including some high-street companies, are now offering mortgages with some kind of flexible feature.

The flexible mortgage is increasingly seen as a mainstream product.

Several lenders have conducted their own research into this section of the market to see how borrowers and IFAs can be better served by the product.

Case-tracking internet facilities allow IFAs to keep up to date on client applications and online examples of howthe mortgage works provide a valuable sales tool.

IFAs can show borrowers exactly how they can save money using a flexible option and also how they can cut down the duration of the loan by making overpayments.

Although lenders do not think the traditional 25-year mortgage is set to become extinct, flexible mortgages look to be the mortgage of the future and this is a trend that has already been seen in Australia.

Borrowers with these mortgages are enjoying the benefits and freedom they provide and, according to First Active PR manager Natasha Plackett. Their research indicates that once borrowers have had a taste of the benefits available, they are hungry for more.

She says: “A lot of borrowers with a flexible mortgage have said they could consider taking a current account mortgage.”

Sun Bank, following its call for an industry standard on flexible mortgages, is focusing directly on IFA opinion.

It is asking 2,500 IFAs which features of flexible mortgages are the most useful to help with financial planning.

The lender wants to know if IFAs find things such as overpayment in the early stages and then borrowing back against it useful for their clients.

Marketing manager Richard Farr says it will be conducting this survey at regular intervals in order to monitor how IFA opinion progresses throughout the next few years.

IFAs will be able to see what other IFAs are doing. However, Farr admits the driving force behind Sun Bank&#39s research is to create some more interest in the market.

Both Abbey National and Halifax, the two biggest lenders, now have deals that could be considered flexible. But whereas Halifax is turning its attentions away from IFA distribution, Abbey National has launched a new internet initiative specifically directed towards this market. The mortgage-introducer internet service aims to simplify life for IFAs by providing an online agreement in principle for a mortgage application that is fully credit-checked within 60 seconds.

Time will tell whether the site will live up to Abbey National&#39s claims but the fact that the lender has chosen to dedicate its internet operation to IFAs is a significant move and once again suggests the industry feels a business-to-business approach is the way forward.

Internet sites that allow IFAs to create mortgage examples are also helping to give borrowers a clearer picture of what they are paying.

They show the true costs of mortgages and can demonstrate that an attractive deal up front might not prove to be the best deal in the end.

As a result, the industry is seeing a move away from redemption penalties and an increase in remortgaging.

People are now more likely to change their mortgage without actually moving house and the fact that lock-ins and redemption penalties are disappearing is helping to boost the remortgaging sector.

Without a lock-in, borrowers are far more likely to switch to another mortgage at the end of an offer period rather than stay with their current loan and pay a higher rate.

It is unlikely borrowers are acting on their own initiative to make savings by remortgaging and Yorkshire Building Society general manager Iain Cornish believes these borrowers are probably influenced by IFAs.

He says: “IFAs now have more efficient methods and more inform-ation and so are likely to go back to borrowers and say they can get a better deal.”

The FSA has been calling for greater transparency and the inter-net seems to be one method of providing this.

But the FSA is also proving to be a stumbling block for the industry at present. Continual delays to its paper on how regulation is set to go forward as well as the expected home- buyers review and the DTI&#39s proposal on banning tide insurance, means the industry is waiting for an awful lot to happen.

The pilot for the homebuyers review is set to be published at the beginning of November but Council of Mortgage Lenders press and parliamentary officer Michelle Vosper says they have no idea when the other reports will be released and as a result the industry is twiddling its thumbs.

She says: “The industry is in limbo-land at the moment as it is not able to make progress with anything until these announcements are made.”

The FSA&#39s delay is also being blamed by the Mortgage Code Compliance Board for changes in its plans for mortgage qualifications.

The MCCB recently announced it is pushing back the introduction of compulsory mortgage exams by a year to 2002.

This will now give IFAs more time to sit the exam and dispel fears of a last-minute dash from adv-isers, reminiscent of the rush to obtain the Financial Planning Certificate in 1997.

The future looks to be an interesting time for the mortgage sector. Not only does it have the regulation changes, but competition looks set to become more intense.

The housing market is starting to peak and although the rapid growth in house prices is coming to a halt, it is likely the market will slow down.

But, with lenders starting to branch out into different mortgage pro
ducts, the arena looks set for a battle for market share.

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