Borrowers in the modern mortgage market are looking for additional flexibility to meet shifting needs and demands.
Flexibility is not always associated with high-street lenders and is sometimes regarded as the domain of specialist lenders. Although it should not be forgotten that larger institutional lenders also have a flexible trick or two of their own.
The first variable mortgage was introduced in 1994 to allow borrowers better control over their finances. The beginning of this flexible approach to finance and mortgages was enhanced by the introduction of the current mortgage account (CAM) in 1997.
The drawback attached to CAMs is that all the accounts are pooled into one account which can leave some borrowers feeling uneasy about having a giant overdraft facility and being so far in the red.
This unease led to the next generation of flexible mortgages, the offset, which was pioneered in Australia in the early 1990s. In 2000, Woolwich – now part of Barclays – became the first high-street lender to bring it to the UK.
How far has it come?
Offset has come a long way over the last couple of decades. But has it come far enough?
Yes and no. First, let’s look at the positives.
In the past, offset was considered only suitable for those with larger balances to deposit – specifically those with irregular incomes or tax bills to pay where saving levels could be substantial.
Pricing therefore reflected the type of customer the product was targeting, making rates unappealing to more typical borrowers.
However, through increased competition and innovation, premiums have been dramatically lowered to help push rates far closer to mainstream borrowing levels.
The numbers of contractors, small business owners and the self-employed – all long-time advocates of offset – have grown substantially in recent years.
This growing proportion of the UK workforce continue to benefit from offset but many employed first-time buyers, remortgagers and homemovers have also embraced the offset as savings rates plummeted.
Not an easy sell
But has this product reached the lending levels it demands or deserves? Sadly not.
Offset is not an easy sell, in part because it requires a certain level of financial understanding from clients.
For intermediaries, this means additional time and a more educational advice process and although its features are increasingly relevant to the modern mortgage market, it’s still not a product for everyone.
Do we need more intermediary support to bolster offset business? Yes.
Any lender operating within this space would welcome a higher offset profile in the intermediary community, especially within such a low interest rate environment, as offset is tax efficient. Perception and understanding remain obstacles offset has yet to successfully overcome.
Why should intermediaries be looking at the offset facility for their clients?
We are operating within a world with a far more fluid workforce than ever before. Self-employed, freelance, contractor and SME numbers are likely to keep growing, so a greater proportion of your client bank could benefit from the offset facility.
Greater understanding of the product may also open the door to new clients.
Offset is a product on which you can frequently review a client’s financial standing and any changes in their circumstances, providing multiple opportunities to boost existing income streams as well as generating new ones.
With a new financial year approaching, this is the perfect time to introduce offset to clients who require a flexible and tax efficient financial planning tool.