The first lender to offer capped rate mortgages will “make an absolute killing”, Orchard Financial Advisers managing director, Ben Perks, has said.
Perks stated that, in the conversations he has had, more and more borrowers are unknowingly crying out for a capped rate mortgage product.
“They are asking for everything capped rates offer but without the name,” he explained.
“Product innovation is always welcome, but so is the recycling of good ideas and, as we settle into the new norm of higher rates, we need some of the broader thinking of years gone by.”
A capped rate mortgage is a variable-rate mortgage, with the rate going up or down in line with the lender’s standard variable rate or by tracking the Bank of England base rate.
But a capped rate mortgage has a fixed upper ceiling or ‘cap’ above which monthly payments won't go.
However there are very few capped rate mortgages on the market.
Charwin Mortgages director, Ranald Mitchell, argued that, following the recet transition to a Labour government, now was the perfect time to seek out new mortgage products.
“Now, with economic shifts, the market is crying out for creativity”, he explained.
“Imagine a capped-rate mortgage with a ceiling and a well-priced variable element: it would be a game-changer, swamping any lender with eager applicants.
“Consumers need security and flexibility, and this is a perfect solution.”
A similar sentiment was shared by Mather and Murray Financial independent financial adviser, Samuel Mather-Holgate, who said: “The mortgage market is crying out for innovation.”
He explained that, while reintroducing old products isn’t the most ideal definition of this kind of innovation, anything that increases the product range is.
“Cap and collar mortgages, flexi-mortgages, and even 100 per cent mortgages would be welcomed back to the market now that strict affordability tests are in place,” he said.
Meanwhile, the benefits of the capped rate mortgage product was explained by Yellow Brick Mortgages managing director, Stephen Perkins, who said: “Capped rates give the best of both worlds to borrowers, but provide a potential liability or risk to lenders.
“While lenders should be confident that rates have peaked and therefore the chances of rates going above an offered cap and them being out of pocket are minimal, the same lenders cannot give brokers 24 hours notice of rate changes,” he said.
“No doubt any lender offering a capped rate would gain traction from it, but they would sooner offer borrowers a fixed rate and look to benefit from rates falling.”
Barnsdale Financial Management principal adviser, Scott Taylor-Barr, added: “A capped rate is, on the face of it, something of the ideal product.
“You get all the benefits of base rate reductions but with the security of knowing it would never go above a certain figure.
“So why did they disappear from the market in the first place?
