Commenting on research from Bloomberg Intelligence suggesting people wanted more access to long-term fixed mortgage rates, Mark Eaton, chief operating officer at April Mortgages, and Colin Bell, founder of Perenna, both said the recent surge in interest rates made people realise how volatile their homeownership status could be. 

April Mortgages offers five- to 15-year fixed rate mortgages with no early repayment charges (ERCs), and Perenna provides fixed rate terms of up to 40 years with five-year ERC periods.

Eaton said people suddenly found that their mortgage was unaffordable, and this reminded them of the importance of having security and peace of mind. 

He said people wanting security with their housing was not new and a desire to be able to pay off the mortgage had “always been there”. 

Bell said this thinking was also uncovered in feedback Perenna received from its borrowers, with Bell saying people “just don’t like instability”, especially since recent events showed them how quickly rates could rise and stay high. 

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Keeping your home is the new advice conversation 

Some lenders have offered fixed rate terms of up to 10 years, but Eaton said restrictive ERCs, limitations on overpayments and the fact rates did not improve as people moved into new loan to value (LTV) brackets “took [long-term fixes] off the table”. 

Bell made a similar observation, saying the options that were historically available had “penal” terms.

Opening borrowers’ eyes to longer-term fixes required a “re-education piece”, Bell said, adding: “The market is dominated by short term fixed rate mortgages. That’s the norm. That’s the kind of groove everyone’s in.” 

Eaton said the lack of flexibility with past products played a part in this, as well as the fact some brokers may not be willing to discuss these options with clients because of the restrictive nature.

He said the advice conservation centred on affordability, and because rates were flat for so long, worrying about keeping up with payments was less of a concern for homeowners. 

Eaton recently discussed this with Andrew Montlake, managing director of Coreco, who said: “As an adviser, buying a home and helping your client keep it is the new conversation.”

“We both agreed that’s probably where advice really adds value. If you can help a client buy a home, then feel secure in keeping it. That’s why I’m really proud that we bought a product like this to the market,” Eaton added.

He said recent policy could also spur this, adding: “Consumer Duty is prompting that sort of thinking we’re looking for which is: let’s make sure we’re ready for the next 10 years ahead of us, not the 10 years that have just gone past.” 

 

Low rates giving a false sense of security 

Eaton said lenders did not cater to the desire for long-term fixes all that well, adding that where rates were low and unchanged for a long period, it gave people a sense of “artificial security”. 

He said the lack of long-term fixed product options plus the 1% interest rate era meant “it just wasn’t happening for whatever reason”. 

Eaton added: “But now that 1% era is behind us, and the cost of living is real. There are more flexible products on the market now and that has created the circumstances and conditions for advisers to talk about this part of buying a home [which is to make sure] you never lose it.”

Bell said: “For 10 years prior to [the first base rate increase] rates didn’t really move much at all. They were very low and didn’t really change. People were happy to take the risk on interest rates. 

“But that’s not normal. Interest rates normally go through cycles, they go up and down. They’re also not normally down at half percent or quarter percent terms of bank base rate, that is also not normal. This is more of a normal cycle.” 

 

Changing mindsets with better long-term fixed rate products

In the defence of advisers, Eaton said of the long-term fixed options typically on the market: “If you don’t put a suitable product on the table, you can’t then criticise brokers for not opening up the conversation with clients because it’s just unrealistic.” 

He said brokers were also acknowledging that they needed to rethink how they presented solutions to borrowers, as long-term fixes were probably not something they had spoken to clients about for a long time. 

Eaton said: “The longer-term market is under-represented, so we definitely welcome anybody who wants to innovate in that area.” 

He said there was a real need for lenders to introduce more favourable products to shift the dial away from the current norm. 

Longer-term fixed rates could become a more prevalent choice, Eaton said, suggesting it was “inevitable” and adding: “If we work hard to create the right products and brokers engage clients in the right way, I think it will become part of the mainstream conservation.” 

Bell also said longer-term fixes could become the norm, as they are in many other countries such as Germany, Netherlands, Denmark and the US.

“In the US, 80% of mortgages are fixed for at least 15 years, if not 20 and beyond. That’s the norm. People only take a short-term product when they think they’re only going to be [in their homes] for a short space of time,” he said.

Both Bell and Eaton welcomed the idea of more long-term fixed rate providers entering the market, saying this may have to come from new lenders as the funding structures of traditional banks made it harder to offer products with similar flexibility. 

Bell said: “We don’t see it as a threat; we see it as an opportunity. Thinking of the consumer, if more people had long-term fixes when rates shot up, we wouldn’t have the issues we’re having today. So, it must be good for the UK economy as well as consumers.”