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Bank of England: brokers "steering" households to short fixed term mortgages "to increase fees from repeat business"

ended 22. December 2024

The Bank of England has today published a staff Working Paper entitled The effect of mortgage brokers on banks’ business models. It claims that brokers steer households towards short term fixed mortgages “to increase fees from repeat business”: The report concludes: "Households who choose a mortgage with a shorter fixed term are more exposed to risks affecting mortgage rates (in particular the future base rate). Hence, an increase in the share of mortgages with a short fixed term transfers risks concerning the future level of the base rate from lenders to households, who are less able to hedge against and manage these risks. A shift towards mortgages with a short fixed term also speeds up the transmission of monetary policy, since changes in the base rate impact household finances more immediately.”

It adds that: “The increase in broker intermediation can also have implications for lender liquidity. This is because lenders often rely on short-term funding (such as deposits) to finance mortgages, which creates maturity mismatch between assets and liabilities. Market conditions that steer households towards mortgages with shorter fixed terms make this maturity mismatch less acute. Whilst the MMR was introduced for the purpose of consumer protection, by ensuring that households received adequate advice when choosing a mortgage, the policy was not expected to materially affect competition or change the composition of lenders’ portfolios. However, our results suggest that the MMR affected lenders’ business models, especially those of smaller lenders, thus giving rise to competition.” Brokers have shared their views, below.

9 responses from the Newspage community

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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
The fact that the Bank of England refers to advisers as brokers says it all. I describe myself as an adviser, not a broker, and that is because I advise my clients on what product, term and criteria are best for their circumstances and requirements. Not what earns me the most commission. It's that simple. Also, rates were consistently low during the period in question and many borrowers actively wanted the flexibiity of a 2-year fixed rate as that might have meant a cheaper mortgage in the not-too-distant future. Equally, many went for 5-year terms in the early 2020s because rates were so low that it was unlikely they would get much better.
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Ben Perks
Managing Director at Orchard Financial Advisers
During this period, interest rates were in freefall. As a result many borrowers fixed for shorter periods and got better rates every two years. Perhaps that’s a more accurate reason for shorter fixed term patterns during that period. To make out that brokers are ‘steering’ borrowers for financial gain is not only inaccurate but a terrible business plan. Doing what’s right for the client, maintaining a good reputation and providing a quality service are the key to repeat business from customers, not whacking them all on a 2-year term regardless of circumstances.
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Craig Fish
Director at Lodestone Mortgages
It’s worrying that the Bank of England suggest brokers are ‘steering’ borrowers to line their own pockets. This couldn’t be further from the truth. If rates are free falling then short term rates make sense, but I know most mortgages I sold were for five years. Furthermore those brokers with networks are monitored closely, so if this report really is true, then perhaps it should also highlight who originated most of those mortgages. It’s likely to be lenders direct, large corporates or directly authorised brokers.
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Justin Moy
Managing Director at EHF Mortgages
Has the research also checked the specific and documented advice between broker and borrower about the choice of a mortgage made at that time? Many homeowners were keen to move up the property ladder and wanted to take advantage of rising prices, keeping the relative flexibility of short-term deals as a priority during this time. The downward mortgage rate trend throughout this period also meant that borrowers were more inclined to gravitate towards shorter term deals so as to benefit from cheaper borrowing. Mortgage brokers are ideally placed to help a wide variety of clients by using the breadth of options from lenders large and small, and as mortgage lenders reduce their advising capacity we have even more responsibility to borrowers. It is somewhat slanderous to suggest advice has been overshadowed by financial greed. The regulation of mortgage advice has meant that all advice is personal to the borrower and their needs, not the broker.
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Simon Bridgland
Broker at Charwin Private Clients
Low interest rates and easily available capital are why households took on debt at levels that are now crippling for many. When borrowers want to refinance to reduce outgoings, they tend to opt for the lower rates and if short term rates are cheapest then that is what consumers will buy. During this time the public were also bombarded with news about rates possibly coming down further, so to give themselves the opportunity to jump to a better deal many elected for shorter term deals.
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Rohit Kohli
Director at The Mortgage Stop
This report from the Bank of England raises significant questions, not only about the methodology used but also about its alignment with the principles set out by the Financial Conduct Authority (FCA). Mortgage brokers are required to assess each client’s unique circumstances and provide tailored advice—a cornerstone of responsible financial guidance. The suggestion that brokers universally steer clients toward short fixed-term mortgages for repeat business paints an oversimplified and inaccurate picture of a highly regulated profession. this report appears to overlook the complexity and nuance of the advisory process. Instead of making sweeping generalisations, it would be more constructive for the Bank of England to engage with brokers and the FCA to better understand the real-world dynamics of this market.
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Mike Staton
Director at Staton Mortgages
This doesn't surprise me at all, I am currently dealing with a client whose original broker talked him out of buying the whole of his shared ownership property and sold him a life insurance policy because "he had to have it to get the mortgage". There are too many poor brokers in this industry and that's because the qualification is too easy to obtain. Since Covid, every sales person has seen the mortgage industry as a quick meal ticket and have tried to jump on the band wagon. The public need to remember, just because your mate or relative is a mortgage advisor, it doesn't mean they are a good one. People should be checking online reviews such as Google in order to get fully briefed on a broker before they use them. If they have more than one 1 star review, then move on.
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Elliott Culley
Director at Switch Mortgage Finance
A mortgage adviser would always discuss different fixed lengths with a client and recommend an option based on those discussions. Often both options would be presented to the client, so they could make an informed decision. During the period of 2013-2020 the base rate was extremely low as were mortgage rates. There was also very little of the volatility that we have had over the past two years or so with inflation and other global factors. Mortgage holders were more likely to fix for a shorter period of time as the rates were cheaper than longer term fixed rates. It also provided mortgages holders flexibilty to change lenders, their term of mortgage and renegotiate a better rate at the end of their renewal period.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
The Bank of England’s suggestion that brokers are "steering" households toward short fixed-term mortgages is an interesting narrative. While it might sound like brokers are captains of the mortgage ship, the reality is less dramatic. Many clients actively prefer shorter fixes given the uncertainty around interest rates, wanting flexibility rather than long-term commitment. Brokers simply advise based on what’s best for their circumstances—not orchestrate repeat business as the report indirect. The report does make a valid observation about smaller lenders benefiting from broker intermediation. Connecting clients to tailored solutions has always been a core part of our role, and it’s rewarding to see that it’s helped lenders diversify and specialise in areas like high LTV mortgages.