Personal Finance: Cherry picking widens credit gap

MORTGAGE lenders have caught on to the fashionable habit of giving single-word titles to their more innovative offerings. There's "Together", a mortgage-cum-loan launching next month at Northern Rock; "Promise", Winterthur's new direct lending arm; and Standard Life's "Freestyle" flexible loan.

It may be as embarrassing as watching your parents dance, but this attempt at trendiness shows lenders want to please affluent young borrowers. Winterthur's "Promise" actually admits to aiming its mortgages at people who have Orange mobile phones and watch Friends.

As long as you have a good income and a sparkling credit record, you have never had it so good. And the lenders aren't complaining. Standard Life has attracted pounds 624m of business in less than a month. Its "Freestyle" package has everything you might want when you buy a home or remortgage to save money. There's a discounted interest rate of 4.55 per cent for six months, then a low variable rate (currently 6.6 per cent and likely to drop in 1999). Paperwork and hassle is kept to a minimum and there are no "hidden" fees to pay. Standard Life also allows extra lump sums to reduce the loan and borrowers can miss a couple of mortgage payments each year.

Northern Rock's "Together" combines a home loan with a bit on top, taken as a personal loan at current mortgage rates. You get to buy that lovely house costing just a bit more than you can normally afford. And the Northern Rock gets shedloads of business. It will be launched in a fanfare next month.

All this innovation is marvellous for those of us on the right side of the bank. And it will also help contract workers and the self-employed. "Promise", for example, will offer a range of mortgages from different lenders and claims it will lend on the basis of income rather than employment history.

But if you have had debt problems you can forget it. Sadly the gap is widening between the great new deals for "cherry picked" customers and expensive loans for the less creditworthy. The problem is made worse since most higher-risk mortgages are sold through independent financial advisers and brokers, who expect commission. Two per cent of the loan isn't unusual, pushing up the cost to already hard-up customers. One firm recently offered a loan with more for customers and less for salesmen. It was a flop.

The lenders are battling to "cap" the amount they have to pay greedy salesmen; the matter is with the Office of Fair Trading. If the OFT gives the go-ahead there should be better deals for those who don't fit "Together" and can't get Orange to connect a mobile.

Standard Life, 0845 845 8450; Promise, 0800 358 8081.