Simon Collins, product technical manager at John Charcol, explained that there was a high risk that customers remortgaging or purchasing with a two-year fixed rate now could finish their introductory term in the midst of political conversations about the UK’s relationship with the European Union.
“Customer product choice at the moment really does depend on a client’s perception of how things are going to go. The chances are that there will be no Brexit talks this side of the new year, so if you take a two-year deal now you’re going to come out slap bang in the middle of all the Brexit negotiations.
“If you’ve got a very low loan-to-value and taking two times income, then fine – why not take the two-year deal and run the risk. But if you’re worried about caps on income and your company happens to do a lot of deals with Europe, then at that point you need to look at longer-term fixes, anything between five and 10 years will be the norm,” he said.
However, longer-term deals are not without their risks, Collins added.
“The biggest problem with 10-year fixes has always been the early redemption charges because they are so prescriptive, so some innovation from lenders in this area would make these products more attractive to consumers. If they look to do that then I can see 10-year fixes becoming a hell of a lot more popular.”
Colin Payne, associate director, Chapelgate Private Finance, said the bulk of enquiries coming through since the referendum have been related to remortgaging. This month, 90% of business have been remortgage deals, in contrast to the norm of around 30%, with tracker mortgages also popular among clients, he added.
“We’ve done 50% of our remortgage business this month on trackers and we weren’t doing any of those deals before the referendum.”
Payne said he does not think the upswing in remortgaging at his business has been down to repeated warnings from Bank of England governor Mark Carney that a base rate cut could be on the horizon.
“I would expect the upturn in enquiries to continue but I wouldn’t put it down to anything the Bank of England is saying for the simple reason that it has been saying the same thing for the last two or three years and for one reason or another those forecasts have never materialised,” he added.
This broker feedback is in contrast with a recent online poll conducted by Mortgage Solutions, showing that almost three quarters of respondents have seen no increase in remortgaging volumes since the EU referendum, with the remainder seeing a significant or marginal increase.
Islay Robinson, CEO at Enness Private Clients, said he saw remortgaging enquiries increase notably following the referendum result, but that the dust has now settled with lender pricing likely to stabilise.
“Our immediate concern was short-term tightening of liquidity which would make it difficult for those to remortgage in the next 12 months or so. We also contacted all of our clients with terms expiring in the next two to three years to cover off their risk of being unable to refinance should the lending market deteriorate significantly,” Robinson said.
“I would advise clients to take a slightly longer-term outlook than usual because short-term products carry a little more refinance risk than they did a few weeks ago. Lifetime trackers, longer term fixed rates and lenders with currently strong retention policies are key considerations.”