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Borrowers are starting to lock-in – Barclays

by: Andy Gray
  • 07/07/2014
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Borrowers are starting to lock-in – Barclays
Andy Gray, managing director of mortgages at Barclays, on how more borrowers are increasingly looking to protect themselves against interest rate rises by taking fixed rate products.

It’s not only the financial services industry that places great faith in the art of making predictions. Four years ago the late, great Paul the octopus captured the world’s attention with his ‘amazing’ powers of prediction at the 2010 World Cup and this time around host country Brazil has continued the sea creature fortune-telling tradition, unearthing a sea turtle as its oracle.

I can only assume that we will see a Sturgeon take over this mantle for the 2018 tournament to be held in Russia.

Now I’m certainly not about to transform into the Mystic Meg of the mortgage world – even though it does have a certain ring to it – but it’s clear that we’re in the midst of a raft of continued interest rate and house price speculation/predictions. And there’s little sign of this coming to an end anytime soon.

In recent weeks we’ve seen a significant number of homeowners favouring our two-year and five-year fixed rate mortgages. In the current market conditions the age old debate over tracker vs fixed is fairly redundant with the vast majority of borrowers favouring fixed rate deals. But that’s not to say tracker products don’t remain a good fit for certain types of borrower and shouldn’t be dismissed totally.

The domination of fixed rate products is hardly surprising given the levels of base rate speculation continuing to dominate the money pages. In light of these conditions, many homeowners are looking for increased certainty when it comes to their mortgage payments.

In the latest instalment in the ongoing interest rate speculation, Bank of England governor Mark Carney has suggested the “new normal” for interest rates is likely to be about 2.5% when rates start to increase.

These comments are hardly leftfield but they will drive more borrowers towards fixed rate deals either now or in the coming months. However, the market and lenders for that matter, will have long factored these considerations into their pricing, meaning that those borrowers waiting until the interest rate announcement trigger point, or until after the initial rise itself will have left it too late to capture some of the ‘better’ deals on offer.

This is not always easy for some borrowers to get to grips with and whilst we have already seen some upward movement in rates, competitive deals are still available to low LTV ‘wait and see’ borrowers and increasingly for the higher LTV borrowers who previously had very limited access to the more competitive fixed rate deals. All of which means opportunities remain for those acting sooner rather than later.

When it comes to the length of deals being taken out we’re increasingly aware of the appeal of the longer-term deals, especially five-year fixes. and we expect this demand to continue.

The longer-term product arena will remain a competitive sector in the mortgage market and can certainly prove to be a good option for borrowers looking to add an extra sense of security around their mortgage outgoings over a longer period of time. And such deals can also provide intermediaries with opportunities to help clients make the most of any additional ancillary financial services products once this important element in the monthly household budget has been secured.

Amidst any period of predictions, speculation and market movement it’s important that the intermediary market and their clients have access to sufficient options and choice.

Individual clients will inevitably continue to have an assortment of wants and needs and lenders looking to maintain a highly competitive product range to cover short, medium and longer-term solutions will be best placed to satisfy any client’s current and future borrowing requirements.

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