As rivalry in the mortgage war hots up, one company is taking a different approach which has caug...
As rivalry in the mortgage war hots up, one company is taking a different approach which has caught the attention of consumers.
Susan Topless takes a closer look at Woolwich Open Plan concept to find out why consumers and IFAs are attracted by this new concept.
As people demand more flexible ways to borrow, The Woolwich has come up with a scheme that helps the consumer save on their mortgage, while still providing good returns on current and savings accounts.
Open Plan was launched by The Woolwich, now a subsidiary of Barclays Bank and the fourth largest lender in the UK, in 1999 and has met with a thumbs-up from IFAs and borrowers alike.
Financial advisers say the range of options is extensive, and the competitive nature of the rates outlined, enhances the attractiveness of the plan to borrowers.
While an increasing number of lenders are succumbing to borrowers demands and incorporating flexible options into their mortgage plans, few providers have offered them at discounted rates.
Senior technical manager at Charcol, Ray Boulger, says initially lenders tended to offer flexible products only at relatively high rates.
"They thought the flexibility would be enough to attract the customer but people didn't bite on that one."
Boulger agrees that one of the primary reasons borrowers are attracted to the Woolwich Open Plan is "probably as much for its low rates as for its flexibility. Woolwich rates are the same as or similar to their mainstream rates".
And the success of Open Plan is obvious. Woolwich has beaten its target to attract 500,000 customers to Open Plan by the end of 2000.
More than half-a-million people are now taking advantage of the multi-channel banking service that allows customers to run their finances via the branch, internet, interactive digital television, telephone or WAP mobile phone.
Lynne Peacocke, Woolwich chief executive, is thrilled with the success of Open Plan.
"This shows that people don't want to be restricted in the way they bank. It proves that from the customer's perspective choice, flexibility and a familiar name are key when deciding where to bank," Peacocke says.
Under the Open Plan umbrella, borrowers can select from Open Plan Flexible Mortgages which offers a choice of rates and re-mortgage deals, including fixed, capped, discounted and tracker rates, or Open Plan Offset.
Offset was launched in June 2000 and already accounts for more than a third of all new borrowing from Woolwich.
The Woolwich reports customers are making full use of the offset feature, having on average £10,000 offset against their loan. To date it has attracted customers with larger than average mortgages but lower than average loan values, typically 75%.
Credit balances are offset against borrowing every day and the customer pays interest only on the difference. No interest is paid on savings or current account balances.
The savings, current account and mortgage are kept separate and interest is adjusted on the mortgage every day. The current account has all the usual features and it delivers a return equivalent to about 10.8% for a 40% taxpayer or nearly 8% for someone paying basic tax rate.
IFAs agree Open Plan delivers a real choice to borrowers.
"The offset product fits in very well with people who want a guaranteed competitive life term rate and maximum flexibility, as opposed to those who want cheaper headline rates," says Boulger.
The latest addition to the Open Plan concept is Open Plan Offset Together. Marketed as a way for families to help their younger members, it offsets parents or grandparents savings against the borrowing.
The savings are kept in a completely separate account with money able to be added or withdrawn at any time. The savings account is linked to the mortgage-holder where it is offset against the loan saving interest on the mortgage.
Potential interest savings on the mortgage mean the mortgage holder can decide to reduce monthly payments or pay the same and clear the loan early.
The mortgage-holder saves money by only paying interest on the difference between the amount borrowed and the amount in the lined savings account.
For example, someone with a £70,000 mortgage, whose parents or grandparents offset £10,000 of savings, will only pay mortgage interest on £60,000 all the time that the savings are in the account. This would save the mortgage-holder £54.17 each month and over a year a total of £650.04.
"We know that many parents already give children a helping hand with their mortgage - our recent first time buyers survey showed that 27% were given their deposit by a family member. Now there is a new way for them to help every month while keeping control of their investment," says Peacocke.
Brokers agree Open Plan Offset Together is an interesting concept but argue it probably isn't going to be the sort of plan they sell easily.
"Brokers usually only see clients once they have selected the property. Brokers will definitely be able to present Offset Together to the clients if they come to us prior to purchasing the property," Boulger says.
Obviously this has struck a chord. Rumours are rife that the implementation of Open Plan has been so successful The Woolwich's mortgage administration department is struggling to keep up with the flood of applications for its Open Plan product range.
While it normally takes no more than a few days to have applications processed, brokers are now having to wait up to two weeks for clients applications to be seen too.
Woolwich admits that staff are stretched and warns there are going to be times when time scales will not be met.
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