You are here: Home - News -

Scratching the two-year itch – Legal & General

by: Stephen Smith
  • 04/03/2014
  • 0
Scratching the two-year itch – Legal & General
For the first hundred and twenty odd years of their history, all building society mortgages were advanced on variable rates.

Then, in 1988, the Abbey National launched the first mainstream fixed rate mortgage and it all changed. I know this because I was there. Today, through the Legal & General Mortgage Club, over 80% of new mortgages advised upon are on fixed rates. How times change.

But one thing has not changed in recent years, and that is lenders complaining about how they’d like to get off the “drug” of two-year fixed rates – a conversation that is often accompanied by aspersions that advisers only sell two-year fixes so that their clients come back to see them regularly.

It’s a subject of some contention between lenders and brokers but one which is ultimately sterile. Consumers buy two-year fixed rates because consumers like them. Lenders need to offer two-year fixed rates because consumers want them.

And why do consumers like them? Because they fit with their personal planning time horizons. Not all consumers make decisions on the basis of pure economics – it is more personal than that.

Consumers like the certainty of payment that a fixed rate gives and two years fits with the time frame that they can see ahead in their lives, in a way that five years does not.

Do you know what you will be doing in five years’ time – in your work or personal life? I don’t. I can have a stab at a two year horizon, but five years starts to look a little hazy.

So I would say to lenders, cheer up. In providing good two-year fixes, you are providing what the consumer wants. And if you do a good job and play fair, the borrower may well stay with you for much, much longer.

Stephen Smith is director of housing and mortgage club at Legal & General

There are 0 Comment(s)

You may also be interested in