A recent report from independent market analyst Datamonitor suggests that current account and offset mortgage are a definite boost for first-time buyers. The CAM and offset market is a fast-growing segment that currently accounts for £22bn of the UK mortgage market in terms of gross advances. This is forecast to double in the next five years. The current state of the housing market, with its continuously rising house prices, is putting enormous strain on first-time buyers. On average first-time buyers in the UK now need to borrow almost 4 x their salary as compared with 2.5 x a decade ago. In London, the average deposit supplied by a first-time buyer has reached £40,000 – over three times that of a decade ago. As a result the proportion of first-time buyers accounting for loans for house purchase has dropped dramatically from 40% in August 2002 to only 28% in August 2003.
“The introduction of family offset mortgages is a breath of fresh air for first-time buyers,” says Karina Purang, financial analyst at Datamonitor and author of the report. “For those parents who have savings sitting in the bank and who are willing to help their offspring to get on the property ladder, this is a good way to go.”
The introduction of current account and offset mortgages a few years ago revolutionised the UK market. Customer take-up has increased impressively and the popularity of CAMs and offsets is clearly reflected in the increasing proportion of lenders offering these products. Datamonitor says that from a proportion of 8% in July 2001, the figure has now doubled to reach 16 % in July 2003. It forecasts that the market value will double in five years to £44bn, accounting for 20% of gross advances in the UK mortgage market.
Datamonitor adds that as seen in the Australian market in the mid 1990s, the popularity of CAMs and offsets in the UK mortgage will continue to develop with the growth of flexible mortgages. Furthermore, increasing competition among big lenders could be the catalyst for the growth of the market.
The market is poised to become even more popular with the introduction of family offset mortgages which allow parents to link their savings to their offspring's offset mortgage account. In addition to the flexibility and tax savings offered by offsets, the main attraction of this product is in lower interest payments.
For example, a customer with a mortgage of £80,000 offsetting against his/her parents savings of £30,000 will only pay interest on £50,000. On the other hand, interest is not paid on the parents' savings accounts while they are linked to the offset mortgage.
The Woolwich was the first lender to offer a family offset mortgage. Since then the Newcastle has gone a step further with its Guaranteed Offset Mortgage. The family offset feature allows parents or other relatives to place funds on deposit for a five-year term and first-time buyers are thus allowed to borrow more than they would normally qualify for as a normal borrower since the deposit feature acts as an extra guarantee for the borrower. The customer has the possibility of taking out a 100% loan depending on the amount of deposit put in by the parents.