While responsible brokers will naturally steer their clients towards the product which suits their circumstances best, with longer term interest rates becoming more appealing, what can the sector do to make it easier for those whose situations may change over such a lengthy period of time?
And, with the Financial Conduct Authority (FCA) focusing on vulnerable clients, what can be done for those whose situations may change during a seven, 10- or 15-year fixed if that change unexpectedly puts them into a vulnerable client situation?
Easier exit strategies
Lilla Dilliway, mortgage and protection adviser at Bluewing Financials suggests lenders must do more to help clients should things drastically change for them. “It would help if the early repayment charge (ERC) wouldn’t be applicable for the entire period so the client has the opportunity to move away from it if something happened,” she says.
This is backed up by Paul Flavin, managing director of Zing Mortgages, who says: “Lenders should take into account giving exit windows”. He suggests exit opportunities every five or so years, to allow a client to come out of what has turned into a mortgage they are no longer able to pay.
He says: “I think if they [lenders] gave them exit windows say at five years, they get a six month exit window free of charge then they get it again at 10 years so that at any time, they’re never too far away from what we would consider a reasonable period.
“Ten to 15 years, life changes too much, technology changes too much. You can’t guarantee your health one day to the next. But 15 years, I certainly wouldn’t like to guess where I’d be in both mental capacity and physical capacity.”
Matthew Fleming-Duffy, director of Cherry Mortgages adds that the market should be moving in the direction of having no ERC penalties beyond the typical five-year period if lenders want to be able to fix clients in for longer periods. “[Lenders are] going to have people paying early repayment charges at some point in the future… is that a good thing?” he said.
Predicting the future
While Dilliway notes it is impossible to “foresee the future”, Ray Boulger, senior mortgage technical manager of John Charcol argues that: “The longer a term of the fix, the more risk that people’s circumstances will change.”
Boulger continues that although people may not be vulnerable when they take a mortgage out, they may become so a few years down the line.
“That’s one of the issues that’s a bigger problem in the later life market because a higher proportion of older borrowers will come into that category. But it’s important to recognise it’s not just things like dementia that can make people vulnerable.”
Dilliway goes on to say fewer penalties should be implemented so if someone’s circumstances do change, it does not impact their borrowing abilities for an extended period. She suggests that if a lender can convert a mortgage into an interest-only product when someone cannot keep up with repayments, then it should not be considered as a strike to their credit file.
“How can we help the client without impeding on their credit file and putting them in an adverse position?” She asks. “It’s nice to give them an interest-only mortgage or give them a payment holiday but if it reflects on their credit file, it’s not helping the client.”
Mike Owen, adviser at Diverse Advisers admits that while it is “difficult” advisers need to be “very careful” when recommending longer term mortgages.
Thinking of a life plan
Fleming-Duffy relies on his standard practices when considering how appropriate a longer-term fix will be for a client, simply by asking them to think ahead.
“The way I start the discussion is I ask them to draw out a life plan, show me what they’ll be doing in 12 months. Where do you want to be? What do you want to be doing? Most people can do that,” he says.
“If you start trying to extend that, five years is very tricky. Unless you’re 60 and will retire at 65, or you’ve just had a child and the child won’t go to school for five years, drawing out a five-year plan is tricky.”
He does have hope for longer mortgages but says “we need more flexibility” before adding: “Life is a changing, it’s a meandering road.”