Cover deal shows innovation isn't dead
Share
In a short period of time the process has been transformed from a lumbering paper chase to a slick online operation.
This has helped lenders improve their ability to manage their processing in terms of volume and efficiency. It has also helped brokers deal with them more easily.
But with the market freezing up thanks to the credit crunch we cannot expect to see the same drive to bring something new to market as we have in the recent past.
With lenders working out how to keep their volumes manageable, we're unlikely to see many of them breaking the mould. But a new insurance product aimed at borrowers shows that the marketplace is not devoid of innovation.
MarketGuard has just launched a policy to cover increases in mortgage repayments over a certain level. Policyholders can choose their level of excess from a range of 1 percent to 2.5 percent. If the Bank of England base rate and mortgage rates increase by more than the excess, the policy will automatically pay out the additional amount.
This effectively gives borrowers the ability to cap their mortgages and offers them protection against rate increases. Customers who bagged one of the keen lifetime trackers available last year might like the chance to protect their repayments.
Of course, the question on everyone's lips is how much will it cost. It is an insurance product so the premium is higher to protect against the greater likelihood of payouts at lower excess amounts.
According to the firm's website, a £100,000 25-year repayment mortgage would cost £42 per month to cover against a 1 percent excess, falling to £12 per month for a 2.5 percent excess. The policy runs for two years and it's important to note that the premium is payable upfront, not on a monthly basis.
So the policy is not cheap at lower excess levels and as it runs for two years it will only pay out effectively if rates climb sharply and soon.
Most risk-averse borrowers will continue to opt for the safe haven of fixed rate deals but this insurance product could offer something for clients with few options or buy-to-let investors looking to hedge some or all of their portfolios against rate rises.
I wouldn't be too critical of something providing innovation in today's market and like any new development we could see it evolve into something that will carry wider appeal.
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
