Yorkshire Building Society: a fresh approach to mortgages

In launching its innovative mortgage product offering divorced customers 0% interest for six months, the Yorkshire Building Society has joined a growing trend in innovation in the UK mortgage market. Indeed, more novel products are likely to appear as lenders look to practices from other markets to remain competitive.

The Yorkshire Building Society has introduced an innovative mortgage product named Fresh Start, which is available under a fixed rate or base rate tracker. Borrowers can choose between two repayment options, namely capital repayment or an interest-only option. Under the latter version, the borrower does not pay anything during the first six months. This addition to the Yorkshire Building Society's mortgage portfolio is designed for people who have recently divorced or ended a relationship, but is available to all borrowers.

The move sees the Yorkshire Building Society apply a typical strategy from the credit card market to the mortgage sector to cater for consumers' life-changing events. Such an innovative approach comes as little surprise, given the saturation of the UK mortgage market, which has placed mortgage lenders in a situation where they must think outside the box to keep ahead of the competition. In a similar vein, in January 2005, HSBC launched a price-led marketing strategy inspired by the retail sector, advertising products such as mortgages as 'on sale'.

In the current housing market where uncertainty prevails and lenders are experiencing diminishing margins, such creativity is likely to prove a recurring theme, whether in the form of product design or marketing.

However, although the Fresh Start product may be the first of its kind in the UK, similar types of mortgage already exist in South Africa and Australia. An example is the Maternity Choice offered by First National Bank, which is designed to ease the financial pressure on borrowers by assisting them while on maternity leave. It allows borrowers to pay just 60% of their monthly repayment for a period of three months, if they possess a good repayment history.

The UK mortgage market may be one of the most sophisticated in the world but there are still lessons to be learnt from elsewhere. Looking further afield for novel product development ideas should be a key strategy for the UK's retail banks going forward.