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Brokers endorse fixed-for-term mortgages but flexibility required – poll results

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  • 04/03/2020
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Brokers endorse fixed-for-term mortgages but flexibility required – poll results
More than two-thirds of brokers believe fixed-for-term mortgages will be an overall success; 37 per cent feel they would be popular among borrowers while 34 per cent think they will work best as a niche offering.

 

However, brokers believe the “devil is in the detail” when it comes to determining how well they are received rather than the fundamental desire for them. 

A minority of brokers responding to the latest Mortgage Solutions poll were less positive with 22 per cent firmly believing there is “very little interest” for them, while seven per cent were unsure. 

As five-year fixes increase in popularity over two-year deals, there seems to be a growing preference among borrowers to keep costs the same for longer – even if that is only a slight increase in time.  

Also, with people moving home less frequently and lenders rumoured to be launching such products either later this year or at the beginning of 2020, there does appear to be a market for it. 

 

Down to the details 

Colin Chapman, director at Genesis Financial Services, says to gain traction, these products will need to be more flexible than the seven- and 10-year fixes which are already available, as comparatively higher rates have stopped those offerings from being more popular. 

He suggested early repayment charges (ERCs) only be applicable for the first five years of the mortgage, to allow for changes to a borrower’s lifestyle and financial situation. 

Jeni Browne, sales director at Mortgages for Business adds to this, asking if the mortgages will be portable to permit a borrower to move properties.

“My instinct is that this would be more for those who are in their ‘forever home’ and are nearing the end of their mortgage term and thus, the prospect of something they can almost forget about would appeal.  

“I can’t see a first-time buyer wanting to lock into something for 25 years,” she adds. 

 

Pricing is critical 

Browne adds that the rate of a fixed-for-term mortgage is also important as a two per cent rate would seem attractive, but a four per cent rate would “generate no interest” due to the significant increased cost. 

Again, this is evident in the five-year fixed market as the narrowing gap between the average rate of a five-year fixed compared to a two-year fixed is what has enticed borrowers to lock into products for longer. 

 

Not much success 

David Hollingworth, associate director communications at L&C Mortgages, says he was surprised to see more than a third of brokers suggest that longer fixed-for-term products would be successful as existing deals have only had limited success. 

He says: “Rates on long term fixed rates may be a touch higher than their five-year counterparts but are undoubtedly very competitive at the moment.” 

And Hollingworth agrees with those who feel it will be a product catered to a select few.  

He says: “We’ve been here before and despite a desire to promote longer term deals the products haven’t matched up to borrower expectation. If that magic recipe can’t be found I expect fixed for life deals could remain a useful but ultimately fairly niche product.” 

 

Audience rethink 

The Conservatives pledging to create funding for the development of lifetime fixed rate mortgages may give the industry a push to extend them beyond the existing retirement interest-only fixed deals currently on the market, Hollingworth predicts. 

He suggests this “could open up the possibility of a rethink in the deal structure to help first-time buyers with affordability”. 

Hollingworth adds: “If a new breed of fixed for life mortgages can be priced close enough to shorter term deals without imposing restrictive ERCs there could be a bigger audience.” 

 

 

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