"The FCA definition of a retirement interest-only mortgage will definitely help with clarity and market confidence in this segment. "
FR: Scottish Widows Bank has recently been explaining the benefits of offset mortgages – do you think offset will become more popular as rates rise and what advice would you give to brokers?
Having come into my role as MD of Scottish Widows Bank on 1st January, it quickly became clear to me, how much offset mortgages appear undersold in the market – almost as a niche product. But it’s an extremely attractive option. Whether in a low or rising rate environment borrowers are keen to keep payments as low as possible, so any savings you offset will save you money. Mortgage rates are always going to be higher than savings rates for instant access accounts, so the offset value is very powerful and we are working on raising awareness of these options to brokers which may be the right option for their clients.
My advice to brokers is we’re in a changing environment where both political and economic uncertainty is becoming the new reality for us. Now more than ever, brokers have the opportunity to provide extra value to their customers in giving quality financial advice and strengthening long-term relationships.
FR: What new products or criteria would you like to see become mainstream in the market?
One of the first changes I made when I came to Scottish Widows Bank was to increase the lending to income multipliers to up to 5x income for certain loan to value thresholds. In the current low-rate environment, mortgages are more affordable than they were 20 years ago. House prices have outstripped wage growth, making it increasingly difficult to be able to borrow the amount you need to buy the property you want. This change in policy should help borrowers, particularly in certain areas of the country where there’s greater disparity between house prices and earnings.
Naturally I’d love to see offset mortgages become mainstream products in the market – for the reasons I talked about above. Offset mortgages give borrowers greater flexibility e.g. self-employed saving up for tax bills, those who earn regular bonuses, entrepreneurs, high net worth individuals or contractors with fluctuating incomes.
FR: How will Brexit and any further rate rises affect financial services in the coming months?
The latest inflation numbers remain stubbornly close to their highest level in almost six years, one of many factors leading to the Bank of England signaling a rise in interest rates before the summer with more potentially on the horizon. Clarity on the outcome of the Brexit process seems some way off still so the economic outlook will continue to evolve. We should expect some ups and downs in financial markets – more than we have had in recent history – which has been a relatively benign period.
On the back of all of this uncertainty in the UK and overseas, swap rates have increased over the last 3-4 months, and we are now starting to see the majority of lenders starting to pass this onto customers.
Although these factors are important, even more fundamental are the changing needs of customers in an increasingly digital world. Lloyds Banking Group (Scottish Widows Bank is a part of the Group) has just announced its third strategic review with £3bn of investment over the next three years in improving the customer experience. This means a significant transformation across the Group and Scottish Widows Bank has some exciting plans as part of that – which I look forward to sharing more about in the future.
FR: The FCA has set out plans to reintroduce retirement interest-only mortgages – is this a good idea and what would it mean for the market?
The FCA definition of a retirement interest-only mortgage will definitely help with clarity and market confidence in this segment. With an ageing population in the UK, it’s important that providers work to address this increasing customer need in the market. The product would of course be helpful for the right customers who have enough income to maintain interest payments through retirement and a need to raise capital. It will be a more straightforward product than an equity release mortgage as the debt will not increase over time if interest payments are met.
FR: If you could see one headline about financial services in 2018, what would it be?
“Mortgage market feels the power of offset”.
