View more on these topics

Blast from the past has future role

The current account offset model is worth revisiting. It has a strong customer retention record and encourages the long-term relationships needed to combat customer churn, says Frank Eve

It seems a long time since the first current account mortgage was launched. Much has changed in the market since then. We’ve seen the dramatic growth of the adverse market coupled with spiralling consumer debt. Income multiples have risen from 2.5 x to 5 x income and buy-to-let has boomed. But the economic and cultural conditions make this the perfect time for lenders to revisit the merits of current account and offset products.

At the core of these products is a model that allows clients to use current savings to offset against borrowing and reduce the interest charged. It also encourages them to pay off their mortgages earlier by allowing overpayments that can dramatically cut the amount of interest charged. Borrowers can also borrow back any overpayments, giving them financial flexibility.

The time may be coming when borrowers will need to repay debt, and the flexibility offered by these products will be a godsend.

At a time when lenders are struggling to keep hold of mortgage borrowers it should be noted that these products have a good record in customer retention. Research into retention rates on current account and offset products finds that they retain their customers over a much longer period than any standard product.

So their use, if coupled with the retention strategies of lenders such as Halifax, could start to reduce the amount of customer churn seen in the market.

This might also provide an opportunity for established prime lenders to fight back against new entrants that securitise their assets, as these products are more difficult and expensive to manage.

As far as brokers are concerned, they get a product through which they can build a long-term relationship with clients as product features have to be explained thoroughly and reviewed on a regular basis.

This could lead to genuine trail commission schemes whereby intermediaries are encouraged to contact their clients on a regular basis to review their financial position. This would also provide more opportunities for intermediaries to sell additional products when annual review time comes around.

These products allow consumers to manage their financial affairs more effectively, are more profitable for lenders and give intermediaries the opportunity to build long-term relationships with clients. At a time when lenders are struggling with profitability, customer retention and product innovation, it’s time to look at these past products for future inspiration.

The mortgage market is in a constant state of change. We are about to move into a period when lenders will no longer be able to afford previous product subsidy levels. As a result they will need to explore alternative models to retain customers and boost profitability. Without subsidies, products will need to be sold on features. The current account and offset product model provides just the features that clients will value.

Recommended

Lehman considering retention policies

Lehman Brothers has entered the retention policy debate by confirming this is something it is also looking at across its three brands.Simon Hinshelwood, managing director and chief operating manager of the investment bank’s European Capital Mortgage division, says that all sub-prime lenders should be considering its approach towards retention and looking to structure both its […]

AMI urges intermediaries to use sub-prime factsheet

The Association of Mortgage Intermediaries is urging all members to use its factsheet on financial promotions for sub-prime products.This follows the Financial Services Authority’s announcement today that over 200 mortgage firms have been asked to withdraw or amend misleading financial promotional materials in the last year. After reviewing the financial promotions of sub-prime mortgage brokers, […]

Portman revises its range of fixed rates

Portman has revamped its fixed rate mortgage range, now offering borrowers a fixed rate of 4.99% for two, three and five-year terms.Available to brokers and direct via its branches, the society is also offering – for a limited time only – no higher lending charges on all fixed rate products with 95% LTV.Matthew Wyles, group […]

A common system is the way forward for the market

From Danny O’Sullivan Richard Griffiths is right to point out that sourcing systems are already obsolete and non-compatible with many lender websites. He is also correct in saying that a web-based solution for brokers is the only one that makes sense. But one important piece of the jigsaw remains, will lenders cooperate? Haven’t there been […]

Health Shield logo - thumbnail

Health Shield launches new and improved health and wellbeing benefits

As part of its commitment to help even more companies improve employee wellness and productivity, award-winning health cash plan and wellbeing provider Health Shield has announced a raft of new and improved health benefits. From early diagnostics, detection and screening services to rehabilitation and the extension of home care support to parents, Health Shield’s range […]

Newsletter

News and expert analysis straight to your inbox

Sign up