In August last year, the average five-year fixed rate started to drop steeply as banks passed the reduction in five-year swap rates on to borrowers. The gap between the cost of two- and five-year fixed deals all but disappeared prompting homeowners to snap up better value longer-term deals.
Currently, the gap between the average two-year fixed rate of 2.43 per cent and the average five-year fixed rate of 2.74 per cent is 0.31 per cent, according to Moneyfacts.
But the trend may cause brokers’ businesses to suffer if they do not put in place now, a contact strategy that will help them to fight for that business in 2024.
Conor Murphy, chief executive of Capricorn Financial Consultancy and Smartr365, said: “When a borrower takes a two-year deal, the cycle between the rate starting and it coming up for renewal is short.
“If the broker doesn’t contact their client at all during that 18-month window the transaction remains relatively fresh in the borrower’s mind without the broker really having to do anything.
“They are unlikely to lose that business to another broker in a such a short space of time, and execution-only hasn’t really existed so there has been no need for brokers to aggressively pursue business.”
But Murphy said that by 2024, when the deal was up for renewal, it would no longer be fresh in the borrower’s mind.
Slick execution-only systems coming
The longer remortgage cycle and rising popularity of product transfers that are rewarded with a lower procuration fee have also put brokers’ earnings under pressure.
Nick Morrey, product technical manager at John Charcol, said these challenges have made it even more important that brokers stay in contact with their clients frequently so they do not lose out on repeat business to the banks.
“Brokers have to understand how the lenders contact those clients and then get in there first to offer excellent advice,” said Morrey.
“The lender will contact the client to collect payments, issue statements and tell them six months before the deal ends that they are due to renew their rate. But they can’t offer them a fully-advised remortgage service covering the whole of market.
“They won’t ask them questions to find out if an offset mortgage is now more suitable, or explain how to raise money for home improvements or school fees. Only an intermediary can do that.”
Murphy suggested brokers use technology to contact clients regularly with information about the value of their property and how much equity they have and then six months before their deal expires send an email to say they will be in touch to discuss new rates.
Morrey said sending clients regular newsletters was an effective way of keeping it touch.
He also recommends offering clients a concierge service that sets up household bills for homeowners when they move into a new house. The service can then be offered to clients who are remortgaging and want to switch utility providers to keep their household bills low.