Lenders urged to improve value of graduate deals

Lenders are being urged to make their graduate and professional mortgages more innovative and market them through the intermediary cha-nnel to spur development in the sector.

Although the graduate and professional mortgage market remains small, with gross advances of just 3.6bn in 2005, Datamonitor says that given the increasing number of young people going into higher education and the difficulties encountered by first-time buyers, it has great potential for growth.

But it warns that the market will remain limited unless products offer better value to borrowers, with many of the deals in the marketplace being uncompetitive.

Datamonitor says that while they take the future incomes of borrowers into consideration and offer high LTVs and generous income multiples, many deals fail to bring anything unique to the market.

Maya Imberg, financial services analyst at Datamonitor, says: “There has been some debate about whether such products really meet a need, with some in the industry believing these mortgages operate merely as a marketing ploy.

“Nevertheless, given the combination of features that they provide, graduate and professional mortgages could pose a competitive threat.”

To cut themselves a bigger slice of this opportunity, Datamonitor says lenders must offer graduate and professional mortgages that provide bona fide value compared with other deals, in the form of better value for money, greater flexibility in terms of features, or being more innovative.

Lenders must also raise the profile of such mortgages by marketing them through the right networks and focussing on distribution through brokers, where most of their business comes through.

On August 7 Scottish Widows Bank enhanced the income multiples on its graduate product.

Gordon Bowden, business development director at SWB, says: “With the challenges facing today’s first-time buyers, lenders must offer realistic solutions.

“Our enhanced product offering is designed not only to help graduates buy their first property but also to make repayments affordable by offering stepped interest rates in line with expected salary increases.”