But medium and long-term fixed rates are already starting to rise as the money markets price in the potential for increased rates in the next year or two.
As a result, fixed rates are about as low as they are ever going to be, so now is definitely the time to take out a longer-term fix.
It is also better for the economy if more people take out a longer term fixed rate now as they will be protected from any interest rate rises over the next five years reducing the likelihood of payment shocks and financial difficulties. However, sometimes people choose not to take a fixed rate, even if it would be better for them financially.
Preventative factors are usually people worrying about a change of circumstances: what if they need to move house, or lose their job? What if rates go down not up and you’re paying more than you should be?
In addition brokers only receive one proc fee whether they fix someone for two years or for ten years, so despite arranging a longer term fix, if it is the right thing for the client, brokers should be receiving trail commission on these longer term rates.
It is important that we take steps now to address this situation. It would be much better if fixed rates did not carry redemption penalties; one historic solution in the US was that a borrower would pay up front for their fix, with perhaps 3% of the mortgage value, but then they could get out at any time, which got over the barrier of people being frightened to fix in case their circumstances changed.
Here, some fixed rates have declining or tapered redemption charges, and maybe these should decline more dramatically after two years which again would make it possible for people to move if they needed to.
This just reinforces the need for trail commission, so that brokers are rewarded for doing what is best for their client and the economy if a 10-year fixed rate s the best solution.
David Copland is director of mortgage services at LSL
