All aboard the new mortgage bandwagon: flexible friends

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The Independent Online

Just as the mortgage industry is faced with the wind of change with the launch of the new CAT standard, traditional mortgage lenders are jumping on the latest bandwagon of flexible mortgages.

With some of the biggest lenders, including Halifax and Norwich Union, reporting that flexible mortgages are among their biggest sellers, others are rapidly developing similar products. Norwich Union is the latest to announce a revamp of its mortgage products, saying that from Monday it is completely replacing its existing residential mortgage products with a new range of flexible loans.

Among the new products are three fully flexible mortgages with varying discount options or the option of no discount.

Norwich Union is touting the new Value Tracker mortgage as the jewel in the crown, with some of the lowest payment rates around.

The tracker will have a tiered rate, with people who borrow up to 75 per cent of their mortgage paying 0.74 per cent above the basic rate. Those who borrow between 76 and 90 per cent will pay 0.84 and people whose mortgage will be a loan between 91 and 100 per cent will pay 1.19 per cent. These rates will last for the duration of the mortgage.

Meanwhile Abbey National recently learned how popular flexible mortgages are.

Abbey last month sold 1,000 of its flexible mortgages which it launched in February. The terms are a discounted 5.9 per cent for six months, followed by a 1 per cent above base rate guarantee for the rest of the mortgage's duration. As with most flexible mortgages, customers are free of charges for early payments and payment breaks and do not pay redemption charges. Interest is calculated on a daily basis.

Abbey says its customers prefer this type of flexible mortgage to ones which offer a combination of current account and mortgage, currently available from many internet and over-the-phone mortgage providers.

"We think people do not want to put all their eggs in one basket. They don't want to put their card into a cash machine and see that they are thousands of pounds in debt because of their mortgage," said Abbey, which claims its new flexible mortgage has, since its launch, outsold other flexible mortgages, including that offered by Virgin One.

Virgin offers one type of mortgage, that combines mortgage with current account. It has a range of rates, which start at 7.10 per cent for people borrowing 50 per cent or less. The next band is 7.20 per cent, for people borrowing up to 75 per cent.

Unlike Abbey, which will only lend its flexible mortgage to people who have a deposit of 10 per cent, a mortgage of up to 100 per cent can be taken out with Virgin. The rate is 7.95 per cent.

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