Nic Cicutti discovers.
With hindsight, you can see it coming. Ten years or so ago, a fledgling company called Direct Line announced it was going to sell car insurance over the telephone.
My, how the other big insurers laughed. It'll never work, they guffawed, wiping tears from their eyes. Nowadays, Direct Line is the biggest motor insurer in the market. More importantly, the message that it is possible to carry out quite sophisticated financial transactions over the phone has spread to a range of other products, including mortgages. Indeed, the entire home-buying process, including insurance and legal arrangements, can be dealt with in this way.
More than 20 lenders have joined the telephone mortgage game, offering as wide a variety of home loans as could ever be obtained through the traditional branch network. In most cases, however, they also operate through branches.
The advantage to consumers is convenience.
A spokesman at Direct Line, which expanded into the low-cost home loan market in early 1996, says: "In part, its a question of lifestyle. People don't want to take time off work to see several branch managers. That is all part of a system where mortgages are sold to them. They want to be in charge, to be buyers."
Perhaps even more importantly, in many - though not all - cases, using the phone can be far cheaper than going to see the local building society manager.
The low cost of mortgages is based on the absence of a branch network, which allows them to undercut traditional lenders: "One of our operators can process more loan applications in a month than the average branch can do in a year," the spokesman adds.
In the case of Direct Line, it means offering a standard variable rate (SVR) loan at 7.59 per cent, considerably cheaper than most other lenders, whose rates hover around 8 to 8.45 per cent. Nor are there advance fees, mortgage indemnity guarantees, or penalties for redeeming a loan early. Repayments of capital are credited monthly, not annually, lowering costs still further.
Of course, in the case of Direct Line, choice is not exactly great: there are no fixed or discounted mortgages on offer. If you don't fancy a standard variable rate - er, tough. Still, its highly competitive SVR has allowed it to capture up to 25 per cent of the telephone loan market, with about pounds 1.2bn lent in the past 21 months.
Many other telephone lenders do, however, offer a choice. FirstMortgage, a lender based in London, has arranged almost pounds 1.5bn of loans both on its own behalf and by offering the best deals from other lenders to its customers.
Another telephone operator which values the choice it can give its clients is Barclays Mortgages. Its marketing director, Jim Chadwick, argues: "Our research shows that people who choose to arrange their mortgage by phone do so for reason of convenience and value, not just price.
"[We are] one of the few direct lenders to offer a full product range, which mirrors that of our branches, not just selected deals.'
James Dalrymple - or rather, his mother Margaret - discovered how easy it is to fix a mortgage by phone. Mrs Dalrymple offered to help her son out while he was at work by calling Barclays Mortgages to find out whether it had any good deals on offer. To her amazement, the operator offered to sort out all the details there and then: "They were very good. I called them and they calculated everything for me right away. The offer took 36 hours to arrive."
Mr Dalrymple, who previously lived in rented accommodation, was able to obtain a 95 per cent loan of pounds 34,000 on special first-time buyers' terms, which included a discount in the first 12 months.
If nothing else, phone-based mortgages have tremendously simplified the process of finding the right loan. Within a few minutes it is possible to find out what the best rates are, whether the lender is prepared to consider making the loan in principle and what the terms might be.
Nor is process limited to mortgages. In the past few years, conveyancing by phone has grown in importance too, with a range of firms able to undercut high street solicitors. What you lose in immediacy and local knowledge you gain in low charges, which can be as little as pounds 195 plus VAT for sales or purchases, to pounds 115 plus VAT for re-mortgages.
For home buyers today, perhaps the only part of the entire transaction for which getting out of a chair is still mandatory may be that of viewing the prospective property. But with the Internet, that too may be about to change.
The Independent has published a free 27-page Guide to Mortgages, written by Nic Cicutti, the paper's personal finance editor. The guide, sponsored by Barclays Mortgages, is available to all readers by calling 0800 585691. Or fill in the coupon on page 4.Reuse content