Are fixed mortgage rates a good idea?

Industry voices concern about fixed rates

Are fixed mortgage rates a good idea?

As market conditions remain unsettled, the prospect of locking into longer-term fixed rate mortgages has been at the forefront of many homeowners’ minds.

But some brokers have cautioned against taking on products of an extended duration, saying that while rates will increase in the short term, they are anticipated to fall again within a couple of years.

And, like borrowers, brokers could face uncertain times themselves, if the volume of mortgages they turn around diminishes.

Lewis Shaw, founder and mortgage advisor at Shaw Financial Services, said: “Anyone locking into anything longer than a five-year fixed rate is probably making a mistake.”

Shaw has been trying to rally against a knee-jerk reaction from worried borrowers but noted that, given widespread concern, it was like trying to hold back the tide.

With customers potentially agreeing long-term fixed rates, brokers could see their business reduced and Shaw suggested that some brokers would undoubtedly go out of business. He added that it would be especially tough for those that constantly churned out two-year fixed rate deals.

“Moreover, consumers have become fixated on tying-in and some brokers have become lazy and unskilled in their ability to have a robust discussion about the merits of other options,” Shaw declared.

According to Shaw, the real value currently for those who can manage a little risk is discount variable deals, and he believes brokers should be making their consumers aware of this option.

He believed that those brokers who provided their customers with successful outcomes would continue to do well, despite conditions, through the power of client retention and referrals.

Scott Taylor-Barr (pictured), financial adviser at Carl Summers Financial Services, reported he had been having more conversations with consumers about longer-term fixed rate products.

“When it comes to it, though, most people do not factor in the downside of tying themselves into a lender with a few thousand pounds of penalty charge to break out,” he said. “If I ask people to describe what life will look like for them in seven or eight years’ time many cannot, so then they realise that a 10-year plus fixed rate is maybe not the way to go.”

Taylor-Barr agreed that any broker who had their client's best interests at the heart of their business, delivered excellent service and added value to their clients would weather a market downturn. Retention, albeit potentially delayed, and referrals would be enough to get them through this difficult period. “After all, when there is uncertainty, that is when people will often seek out professional assistance,” he added.

New opportunities

Robert Payne, director at Langley House Mortgages, explained that brokers need to adapt and find new opportunities within the market in order to survive during this period.

“We have refocused our efforts,” he said. “Firstly, we have contacted existing clients to ask for referrals from any friends and family who are existing borrowers and worried about the current market.”

Payne explained that Langley House Mortgages had also spent time revisiting conversations with customers around protection.

Read more: How should brokers adapt to the UK’s ever-changing housing market?

Sabrina Hall, mortgage adviser and protection adviser at Kind Financial Services, agreed that brokers must find new opportunities to remain in business.

“Brokers need to continue to attract new clients as well as look after existing clients through protection and insurance reviews,” she said.