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Long-term fixes go against need for greater client contact – Clifford

by: Rob Clifford, chief executive of Stonebridge
  • 06/03/2020
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Long-term fixes go against need for greater client contact – Clifford
The ongoing discussion about the appropriateness of long-term mortgages in the region of 20 to 25 or 30-year terms is a recurring theme in the mortgage market.

 

There might be a degree of semantics at play here but the article I read in Mortgage Solutions about certain lenders developing fixed-for-term products seemed to me essentially the same discussion the industry has been having over at least the last 20 years.

That is, whether UK borrowers – or indeed advisers – can see any benefit in committing to ultra-long-term, fixed-rate mortgage products which would last, if not a borrower’s entire mortgage lifetime then pretty close to it.

Governments of various flavours have often seemed determined to engineer such a cultural shift among borrowers; it’s just that life has tended to get in the way of this objective.

In other words, clients might see how their life could be mapped out over a short period of time, but take that into double-figures, and this certainty dissipates away quite quickly.

Circumstances change and having a fixed-for-term or a very long-term mortgage with early repayment charges (ERCs) might not necessarily seem like the right option at that point.

It’s possible advisers might find themselves in the firing line for such a recommendation, from clients who might have thought having the same product or rate for life was a good thing at the start of their mortgage journey, but a couple of years in, think very differently.

 

Remuneration issues

Of course, from an advice perspective, it’s not just the potential spectre of ERCs that might raise their head.

At a time when we’re trying to encourage far greater levels of client contact, how does a fixed-for-term product fit in with that?

Would there be remuneration incentives within such a term for ongoing client contact?

How might that be proved, and paid for, and what would it actually mean for an advice firm’s overall income?

Does it not open-up the possibility of far less client contact when we actually want – and clients typically need – more?

What we’re also talking about here is a ground-breaking culture shift.

Prior to the General Election, the Conservatives were trumpeting these types of products, and no doubt, when the government comes calling, lenders are going to sit up and take notice.

Hence, the whispers around fixed-for-term products being ‘in development’, but we have also been here before.

 

Flexibility needed

I recall Professor David Miles’ report into long-term fixed-rate mortgages – almost two decades ago now – which essentially said, they could be positive.

He argued they could ensure less fluctuation if borrowers are not on variable pricing and subject to the vagaries of rates, and they could be a stabilising factor for the mortgage market, but there was really no appetite for them.

Are advisers convinced of the argument now, to any greater extent than they were against it back in 2003? I have my doubts.

Certainly from a network point of view, it is likely we would want to see overwhelming positives for a borrower being recommended such a product.

And I suspect that perhaps to even get to that stage, we would want a large degree of flexibility built in, particularly around charges and adviser remuneration.

Even then, would the mortgage market head in that direction in any meaningful way? Perhaps, but I remain to be convinced. The proof of the pudding will be in the set-up and criteria of these products – I await them with interest.

 

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