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Brokers - are your clients keen to pay ERCs to secure a new deal?

Journalist: John Fitzsimons, Freelance

ended 27. September 2022

Morning brokers

Off the back of lenders pulling rates yesterday, and the speculation about base rate potentially hitting 6% next year, has there been a reaction from your clients in the middle of fixed term deals?

Has there been increased interest in paying up to leave their current deal? And how does the advice process work here - how do you go about protecting them and getting the best deal, without adding to their panic?

 

4 responses from the Newspage community

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Imran HussainVerified
Director at Harmony Financial Services
A lot of clients I have spoken to are not overly worried as they are on super low rates compared to what is available on the open market and once things settle down rates shall level off anyone paying early repayment charges right now much do so with their eyes open because if rates drop in 18 months and you are 2 years into a 5 year fixed rate you may well have lose out on another 3 years on much lower rate than the current open market rates I can't see many advisors also recommending clients pay a early repayment charge as no one has a crystal ball to know where rates shall be in the next 18 to 36 months.
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Rob PetersVerified
Principal at Simple Fast Mortgage
Consider with caution. Exiting a fixed rate deal early is very rarely the best advice. The Early Repayment Charge levied by a mortgage lender upon the exit during a fixed rate period will generally outweigh any potential saving a lower interest rate can offer. Of course this is based on the current interest rates but the big question is we all want to know where interest rates will be in 12 or 24 months time. Unfortunately, the reality is no one knows and making decisions based on guesses about the future is gambling, not advice.
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Ashley ThomasVerified
Director at Magni Finance
We have a client who has just paid an £18k exit fee from their product to secure a new rate on a 5 year fixed. The current product is 2.67% fixed until May 2023, the new one is 3.23%. They are concerned with increasing rates, with the existing loan at £900,000, even a 1% change makes a significant difference.
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Michael O'Brien0
Managing Director at Home of Mortgages
Our message is clear, 'Keep Calm & Seek advice'. To put this into context, 2 lenders pulled interest rates yesterday from over 120 lenders we have access to. The market is not in the position it was back in 2008, first time buyers can still purchase with a 5% deposit. No doubt about it, the cost of borrowing is increasing, however, faced with the alternative the ever-increasing cost of renting, a mortgage is still a more comfortable alternative. The cost of exiting a fixed rate deal is very rarely the best advice. Lenders generally apply early repayment charges of between 3% and 5% of the loan which would need to be paid when exiting a mortgage deal during a fixed rate period. On a mortgage loan of £250,000 the early repayment charge could amount to between £7,500 & £12,500. Borrowers coming out of fixed rates now, will be paying circa 4%, so why would someone exit a 2% fixed rate, pay an early repayment charge to jump onto a 4% rate, in order to avoid the 'potential' of paying a 6% rate in two years' time? i.e. a £250,000 mortgage over 25 years at 4% - £1,319.59pm and at 6% would be £1,610.75 a difference of £3,493.92 a year. As the last couple of years have shown - a lot can change between now and then, generally, keeping your current fixed rate is the best advice, whilst also reviewing your situation six months before the end of your deal.