Flexible mortgage products such as current account mortgages have not been as popular as first expected despite their many benefits to borrowers. While current account mortgages are relatively new to the UK market, experts have suggested that their take-up rate should be higher.
Flexible mortgage products are extremely popular overseas because they can help borrowers reduce their mortgage term by several years. This type of product originated in Australia and is sometimes called an Australian Mortgage.
The low popularity of current account mortgages in the UK is being blamed on two factors high interest rates and poor marketing. The interest rates attached to current account mortgages are generally higher than for standard products with similar loan-to-value ratios. Borrowers may see this as a deterrent before even assessing the overall nature of current account mortgages and the benefits they offer.
However, borrowers should be able to save interest over the life of their mortgage by offsetting the interest on their savings, which are usually held in a current account with the lender or included within the same line of credit as the mortgage itself.
While this may have been a deterrent in the past, things could be about to change as more competitive products are beginning to enter the market. Lenders have begun to release current account mortgages with interest rates closer to those of standard mortgage products. This should help to increase their popularity.
The other factor blamed for the poor take-up rate of current account mortgages is the limited exposure they receive in finance literature. Current account mortgages rarely features on best buy” mortgage tables, therefore hindering borrowers’ ability to directly compare the products against each other.
This may be because best buy tables focus heavily on the APR of the products they compare. Flexible mortgage can appear to have high APRs because of the high interest rates and can therefore be unappealing to borrowers. The APR, however, may not properly account for the interest that can be saved by making regular overpayments during the term of the loan.
Borrowers are also unaware of the benefits of current account mortgages because few articles within the financial press mention such products. An increase in the expose of current account mortgages would increase public awareness of these products and help to make them more popular with home owners.
Current account mortgages, and other types of flexible mortgage products, are quite popular overseas because they help to streamline the borrowers’ banking facilities and reduce the overall term of the mortgage. The idea of having only one account to manage combined with the prospect of paying of their home sooner, has helped current account mortgages to secure a permanent place in the mortgage market overseas.
With an increase in marketing this trend may soon occur within the UK as well. Home owners in the UK may therefore soon realise the many benefits of flexible mortgage products and begin to fall in line with the world trend for home owners to utilise this type of mortgage product.
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