Current Account and Offset Mortgages

Transcription

1 A Datamonitor brief timely Current Account and Offset Mortgages Reacting to the latest news breaking in your industry focused Publication Date: Oct-03 Product Code: Hundreds of hours of analyst time distilled into a few pages The UK mortgage market was revolutionalized a few years ago with the introduction of current account and offset mortgages. primary research Since then, customer take-up has increased impressively. It is believed that the UK current and offset mortgages market now accounts for 15 per cent of net lending. What are the drivers behind this success? How far will the market grow? This brief provides the answers. Unique survey data and interview results thought-provoking For details of all Datamonitor Financial Services briefs, go to: Fresh opinions and out-of-the-box thinking

2 timely Reacting to the latest news breaking in your industry Scope and coverage of the brief This brief covers current account and offset mortgages as well as flexible mortgages in the UK market. It also looks at the past, present and future of current account and offset mortgages in markets outside the UK. Report highlights While it is often argued that these products have more of a niche appeal and are not for everyone, established lenders in the current account and offset mortgage market such as The One Account and Intelligent Finance are now enjoying reasonable success. Woolwich was the first lender to offer a Family Offset Mortgage. Its product, Offset Together, is based on the same principles as the normal offset account but also allows customers to link their mortgage with the Open Plan savings family member or friend. Reasons to purchase Provides detailed information and analysis of the current account and offset mortgage market in the UK Profiles a number of lenders active in the current account and offset mortgage market Discusses the future of current account and offset mortgages in the UK and abroad For more information... tel: fax: [email protected]

3 primary research Table of contents Hundreds of hours of analyst time distilled into a few pages ABOUT DATAMONITOR CHAPTER 1 INTRODUCTION CHAPTER 2 MARKET CONTEXT Definition of Current Account Mortgages (CAMs) Definition of Offset Mortgages (OSMs) Mechanism of CAMs and OSMs CAM concept pioneered in Australia in the 1980s Are the Australian CAM and OSMs more elaborate than the UK ones? - The 'line of credit' concept: one of the latest innovations - Viridian Addvantage: a flexible 'all-in-one' portfolio-style facility from The Commonwealth Bank Group Popularity of CAMs and OSMs Flexible mortgages: an ingenious and popular concept - Flexible mortgages allow customers to use mortgage reduction strategies - Weekly or fortnightly repayments reduce the mortgage term CAMs and OSMs: taking the flexibility concept a step further CAMs and OSMs offer other advantages too Lenders are differentiating their products for niche markets - Self-employed customers - Buy-to-let - Workers on a commission basis - Professionals - Customers looking for a career break And now an offset product designed for first-time buyers - CAMs and OSMs : to the rescue of first-time buyers - First-time buyers are shying away from the housing market - Woolwich, the first to launch a Family Offset Mortgage - Newcastle Building Society : a step further in Family Offset Mortgage - Parents' deposit helps first-time buyers to borrow more than normal amount - The family offset mortgage allows parents to keep control of their funds Critics voice their opinions - CAMs and OSMs are not for everyone CHAPTER 3 MARKET STRUCTURE Sizing the CAM and OSM market One in ten new mortgages accounts for a CAM or OSM - Research suggested that 15 per cent of net mortgage lending is accounted for by the current account and offset mortgage market - Futhermore, ten million customers would consider moving to offset banking, according to a research More than 20 lenders offer a CAM or OSM product - OSMs seem to be the preferred choice of lenders - Providers of CAMs and OSMs are increasing Smaller lenders are benefiting from the efforts of trailblazers Much is spent on advertising by big lenders Barriers to entry IT cost - More investment should be made in IT to maximize cross-selling The One account History One account: the all-in-one concept - Borrow at a lower rate with One account - True flexibility - Borrowing limit - Products offering The One account invests heavily in advertising Addressing critics - Helping customers stay on track Conclusion For more information... tel: fax: [email protected]

4 focused Hundreds of hours of analyst time distilled into a few pages Intelligent Finance Intelligent Finance is the only UK bank to offer the ability to offset against an unsecured personal loan Intelligent Finance makes the most of customers' money - Possibility of zero per cent interest on borrowings - Product offering Figures highlight measured success for Intelligent Finance - Intelligent Finance fared well in Moneyfacts' Top 35 Mortgage Lenders survey Conclusion THE FUTURE DECODED Potential in the UK market Potential abroad Ireland - First Active launches Ireland's first current account mortgage - Initial reports on uptake of First Active's current account mortgage are positive - Bigger things predicted for the current account mortgage market in Ireland APPENDIX Data tables Definitions - Bank of England base rate - Buy-to-let - Current account mortgage - Gross advances - Loan-to-value (LTV) - Mortgage Indemnity Guarantee (MIG) - Mortgage Indemnity Premium (MIP) - Mortgage term - Net lending - Offset mortgage Relevant readings - Reports - Briefings Future readings - Reports - Briefings Relevant links Datamonitor Financial Services Consulting SPP writing team List of Tables Table 1: Providers of current account and off-set mortgages in the UK, August 2003 Table 2: Lenders of flexible, CAM and OSM mortgages have increased throughout the years Table 3: Offset rates available for One account Table 4: Offset rates from Intelligent Finance Table 5: Total mortgage borrowings for the Australian market Table 6: Standard house price for first-time buyers in the UK, March June 2003 List of Figures Figure 1: Explanation of how a CAM can be more cost effective than a traditional mortgage Figure 2: A CAM allows a shorter repayment period Figure 3: By offsetting their savings against their mortgage, personal loan and credit card a customer pays interest on a smaller amount Figure 4: The Australian mortgage market picked up again in the mid 1990s Figure 5: Over 60 per cent of mortgage lenders operate in the buy-to-let market Figure 6: In June 2003, standard house price for firsttime buyers in the UK stood at 92,528 Figure 7: Explaining how the Newcastle BS 'family offset mortgage' works Figure 8: In July 2003, 16 per cent of mortgage lenders offered a CAM or OSM product Figure 9: In 2002, The One account spent 11.2m advertising its product Figure 10: Higher return on savings with the One account Figure 11: Offsetting credits against debits reduces interest payable Figure 12: How to increase interest received on savings Figure 13: Intelligent Finance shot straight to fourth place For more information... tel: fax: [email protected]

5 thought-provoking Interested in this topic? Fresh opinions and out-of-the-box thinking Datamonitor has been serving the world's leading retail banks for more than a decade. Our research and analysis cover personal lending, mortgages, retail finance, ebanking, channel strategies, bancassurance and many other fast-moving retail banking markets. The core range of retail banking market reports is supported by a range of briefs on the hottest issues in the lending and mortgages markets, looking at topics from Equity Release Mortgages to Customer Acquisition in Personal Lending. Other reports available in this series: UK Mortgages 2002 Mortgage Pricing Strategies During 2001 gross advances secured against residential properties reached 161 billion. House prices also continued to rise such that, according to the Council of Mortgage Lenders (CML), the average price of a property in the UK reached 115,700. Who wins and loses from growth in the housing market? Which trends are the most interesting? What will happen to gross advances in the years to 2006? UK Mortgages 2002 answers these questions and more. It is the definitive guide to the UK mortgage market. This briefing starts by examining the factors that influence mortgage pricing, both on a market and a competitive level. It proceeds by studying the pricing strategies of many of the major lenders active in the UK mortgage market in fixed and variable rate product areas. Variable rate mortgage pricing strategies are also compared using Datamonitor's bespoke mortgage costing tool. This brief is an insightful analysis of the factors that have influenced mortgage pricing in recent years. Published: Product Code: Price: Oct-02 DMFS1505 1,995 / 3,570 Published: Product Code: Price: Jun-03 BFFS / 1,295 For more information on reports and briefs, go to: Subscribe to Monitor A monthly update of Datamonitor's new products, delivered to you by . [email protected] Subscribe to Digests A weekly round-up of news for your industry, delivered to you by . [email protected] NB. Don t forget to mention all your contact details when you us

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