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Jumping too soon? Borrowers leaping to fix long-term rates amid rapid inflation - adviser view

Journalist: Rozi Jones, Financial Reporter

ended 02. May 2023

We're seeing anecdotal evidence on social media of advisers seeing clients who jumped at the chance to lock in 5 or 6% rates amid the rate rise chaos of the last few months - including many who paid money to exit low-rate deals early. 

This is a story we'll be following closely, but for now we're looking for other cases where this has happened (the more detail the better - previous rates, new rate, lender, any ERCs). 

At some point we'll be looking for interviews with borrowers, so if you know any who'd be open to speak to us, that's great too!

7 responses from the Newspage community

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Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The media hysteria around mortgage rate rises and the cost of living crisis failed to put the time horizon into perspective. It was going to be a really difficult time for families and homeowners, but inflation is only measured over 12 months and the tools used to reduce it will have to be withdrawn when it returns to target. That means rates coming back down, probably to around 2% by the end of the year, fighting off the next crisis- the possibility of deflation, and that would be much worse.
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Emma Jones
Managing Director at Whenthebanksaysno.co.uk
We hope that those paying exit fees did not have a few years left on their mortgage deal as that would of been considered as 'bad advice'. For those that secured as early as 6 months, they have still been able to take advantage of a lower rate once they become available again, provided this was before completion! Unfortunately we don't have any examples where clients paid large exit fees with time still on their deal. Most of our advice was to wait it out if they had considerable time left on their current deals which for most of our clients was sub 2%!!
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
The whole industry seemed to go into blind panic mode last year, driven by doom-mongering headlines. Too many people rushed into long-term fixes and will now be paying what looks like over the odds for years to come seeing as rates have already come down from their highs. Many of those customers panicked and payed sometimes thousands in early repayment charges for the privilege. It just shows why good quality advice is so important. Fortunately we advised many customers to look at other options which were right for them such as variable or tracker rates with no tie-ins whilst the market settled and are now looking at new fixed-rate solutions for many of them as sanity returned. My fear is that too many banks and brokers simply rushed into facilitating a knee-jerk reaction for customers feeling vulnerable.
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Gareth Davies
Director at South Coast Mortgage Services
To say the nation went into panic mode in late Sept/early Oct 2022 is an understatement.
Our phones were off the hook with calls, emails, texts etc, all panicking about the fallout of the disastrous mini-budget. We had people calling us with another 2yrs to run on a sub 2% fixed rate, wanting to redeem it early in order to secure a deal at 5%/6% because they were worried things would be worse in 2yrs time.
Fortunately, we took the stance that the sharp increase in rates was more of a knee-jerk reaction by lenders as opposed to a long-term strategy, and advised any client we spoke to not to rush into a new deal and to let the dust settle. We did see someone go against our advice and they paid substantial fees to refinance early onto a deal that was, in our eyes, very significant in cost. Had they sat tight as we'd advised, they would have saved thousands of pounds in penalty fees and future interest as the products reduced very soon after they committed to a new one.
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Paul Neal
Mortgages & Equity Release Advisor at First Choice Financial Services
Long-term fixed rates are great if you know what you are doing in the next 10 years, however, they do run the risk of high ERC's and also put you at the risk of losing out on drops in rates, 2 years ago a fixed rate of 1.8% fixed for 10 years was a fantastic deal, in my opinion, 10 years fixed at 5% not so.
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Matthew Jackson
Director at Mint FS
Advice is invaluable in a changing market - personally i have spoken to numerous new clients in the last month or so that jumped to lock in a new long term rate in the height of the chaos post mini budget without advice and are now regretting it.

Unfortunately the majority of these products have hefty penalties to exit and this will be a costly lesson for them. However it does illustrate the need for everyone to be concious of the messages delivered by some news outlets and the panic this can induce in the public!
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Austyn Johnson
Founder at Mortgages For Actors
There were many people jumping to high rates, early or not. Why? Because of the hype that was raised at this time. I had clients in tears calling me to help as well as a huge rush of people wanting to fix for the long term in case the rates went up to 15%. As much as I try to help people with their mortgages, some had been made to feel so nervous that they just needed to fix it for their piece of mind. Usually for 5 years too due to the rates. the country needs stability for it to work properly and the sudden panicking hikes took that security away.