You are here: Home - News -

With the economy forecast to improve, is it wise to recommend cheap discount mortgages, or are fixed deals a better option?

  • 13/11/2001
  • 0
Prior to 11 September, the UK economy has continued to grow at a reasonably healthy rate. It had not...

Prior to 11 September, the UK economy has continued to grow at a reasonably healthy rate. It had not seen the sharp slowdown encountered in the US. Here, GDP growth has declined modestly from 2.4% at the end of last year to around 2.2%.

In contrast, the US economy is apparently slipping into recession after 2% growth at the end of 2000. Most forecasters had regarded this year as the trough in the economic cycle, before a recovery ensued during 2002.

This view has now altered. It appears that weakening consumer confidence risks a more prolonged slowdown. Any recovery in the UK may be later next year and potentially weaker.

At the time of going to press, base rates had already fallen by 1.5% ‘ to 4.25% ‘ since the start of the year and are set to fall again before the end of the year. Most lenders have cut their standard rates by 1.4%. Current consensus among economists is that rates will be pushing back towards 5%.

Fixed rate pricing is a strange animal and depends on financial markets’ forecasts of future base rates. Markets have been revising their expectations for base rates and as a result, lenders have been reducing rates on fixed deals. The key question is whether the economy will recover next year, dragging base rates higher. If so, then fixed rates may prove to be good value. However, economic conditions could deteriorate and the current uncertain climate makes this difficult to rule out.

The choice to take a fixed rate will depend on borrowers’ appetites for payment volatility during the course of their mortgage. Those who want to budget carefully will find fixed rates a helpful tool. The best approach is to recommend a deal the borrower can clearly afford over the medium term, that will not require an uplift in payments at a later date.


There are 0 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.


Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.


Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.


Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
  • Richard Beardshaw, head of sales, mortgage intermediaries at HSBC UK for Intermediaries welcoming the brokers to to…
  • We are in Allianz Park today for the first in the series of HSBC UK for Intermediaries Breakfast Seminars
  • At this year’s Later Life Lending Event Richard Rowntree from Bank of Ireland for Intermediaries will be presenting…
Read previous post:
L&G backs tied agents in FSA debate

Legal & General has hit back against claims that consumers may not be getting the best advice if the...