CAT's out of the bag and onto the Net

Government launches new deal for mortgages

CAT standard mortgages were launched by the Government this week. They have been designed to make sure that British home buyers - worth £493.8bn - get a fair, clear deal. But exactly when the new standard of mortgage will become available varies widely.

All the major mortgage lenders have enthused about the transparency and fairness that the CAT mark represents. The Council of Mortgage Lenders, which represents 98 per cent of the industry, said this week: "The first CAT standard mortgages are likely to be available within days."

But anyone wanting to take out a CAT mortgage will try in vain on the high street. They will have to turn to the internet and other new lenders. The UK's biggest lenders - Halifax, Abbey National and Nationwide - said their product would not be available until the summer at the earliest, with Nationwide not able to give any time frame.

But the new banks were hot off the starting blocks, with some saying the race was "too easy".

Egg, the internet banking arm of Prudential, announced this week that its mortgages are fully CAT-compliant, giving the same guarantee for existing mortgage holders. Virgin One and First Active said that the new standard does not go far enough.

The conditions that people should expect when they buy a CAT mortgage are numerous. Interest will be charged on a daily basis. Redemption charges for variable mortgages have gone and although they stay for fixed rate and variables, they must be clearly stated and kept low. CAT mortgages will not be linked to the sale of insurance.

The minimum loan that a CAT will be available on is £10,000, to allow existing customers to switch to a CAT mortgage. And lenders will not be able to charge interest at more than 2 per cent over the basic rate.

The problem is that today - nearly a week after the CAT was launched (and months after the industry knew that they were coming) - high street lenders are saying itwill take time to organise themselves.

A spokesperson for Nationwide, the fourth largest mortgage lender with over a million policyholders, said: "It is very early days. We can't say when they will be available. It could be less than a year, or it may take longer."

Nationwide and the other major lenders are playing down what a difference the CAT will make. The spokesperson said: "Our products have been moving towards the CAT standard. For example, we got rid of extended redemption penalties which came in for a lot of criticism."

Nationwide points out that a CAT mortgage will not be suitable for everyone - something the Government has agreed with - and says certain existing products are becoming increasingly popular.

The Halifax, Britain's largest mortgage provider, points to other products that are seeing increasing demand. "Short-term discounted rate mortgages are very popular at the moment," said a spokesperson.

The deal at the Halifax is a discount of 1.95 per cent on its standard variable rate of 7.74 per cent. People can switch out of them if interest rates creep up without a penalty.

The Nationwide broadly agrees, saying that its two-year discounted rate of 5.6 percent, going up to the standard variable rate of 7.29, is one of their most popular products.

"We don't want people to think that CAT equals good and the rest are bad," said the Halifax spokesperson.

They would, in fact, like people to think quite the opposite, say some of the internet banks. Andrew Firth, marketing director of Egg, said: "Some of the big lenders would like to see the whole thing fail. If the whole market went CAT it would be great for customers but not good news for certain major lenders."

You can buy a CAT mortgage at Egg today and pay a permanent interest rate of 6.69 per cent. There are no charges for overpayment or payment breaks and interest is calculated on a daily basis. But some say the CAT mark is not good enough.

First Active, which specialises in flexible mortgages, intends to use the CAT product as a benchmark to show that its products are more flexible and low-cost.

Tony Ward, managing director, said: "The 2 per cent limit on the base rate is too wide, and there should not be any redemption charges, even on fixed-rate mortgages. Why have redemption charges at all?"

A First Active mortgage allows customers to make early repayments or take payment holidays and has no early redemption penalties. It offers a typical repayment rate of 1.25 per cent.

The Virgin One mortgage does not fall within the CAT because it is combined with customers' current and savings account, making the minimum loan of £10,000 hard to achieve.

But it also exceeds CAT expectations, with rates at 1.2 per cent for people borrowing up to three-quarters of their mortgage.