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Recommending two or five year mortgage fixes?

Journalist: Lana Clements, The Sun

ended 19. August 2022

A few brokers have recently commented on Mortgage Solutions articles saying that they are wary of recommending five year fixes in the current climate 

https://www.mortgagesolutions.co.uk/news/2022/08/12/have-stopped-recommending-five-year-fixes-star-letter-12-08-2022/

I'm looking to delve into this a bit more.. so wondering how many advisers are feeling the same way? And why or why not?

How much consideration goes into advising how long the fix should be - or is it more customer led?

Thanks

Lana

 

 

 

5 responses from the Newspage community

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Editor
Rob Peters
Principal at Simple Fast Mortgage
Any adviser predicting future interest rates for their clients is heading down a dangerous path of potential unsuitable advice. The choice of whether to fix and for how long should always be based on the customer's circumstances and needs. It is impossible to predict the future no matter how experienced or qualified the adviser is. The main considerations should be what is affordable and sustainable for the client, their future intentions regarding moving home or paying-off a substantial amount of the loan, any life events and what that means for them, the impact an increase / decrease in interest rates might have them in the future. Advisers should absolutely help borrowers understand and explore their own views towards interest rates, but putting forward a personal prediction is a step beyond advice and into speculation.
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Imran Hussain
Director at Harmony Financial Services
The Bank of England is pretty much in a battle to tackle inflation this will mean rate rises but what history shows us is whenever the country enters a recession rates tend to stagnate or drop slightly, but the main thing everyone seems to be missing is what determines how long a should someone should fix for is all down to the client's INDIVIDUAL circumstances there are many factors do they plan on moving within the next 2/3 years and have no plans on extending the home where they may require additional funds or do they simply plan on living in the home for the next 25 years and are not that fussed about rates going up or down as the interest rate will be the interest rate in 2,3 or 5 years time there can and will never be a 1 size fits all approach but every pro and con should be covered with clients as no one knows what rates will be in 2,3,5 or even 10 years time.
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Jonathan Burridge
Founding Adviser at We Are Money
The decision should be customer based. Recommending one product over another because of the advisers personal view of the future is dangerous ground. Of course, as individuals we have opinions, but, the product selection is based upon many factors, affordability, clients plans, clients preference (fees for example), products available to them and their attitude to risk.
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Matthew Poole
Director at Poole Family Financial
National media outlets are putting the fear of god into people at the moment, when reporting on rising interest rates. Leaving the majority of the public automatically believing a longer term fixed rate is best for them. It all comes down to the borrowers individual circumstances as to what is right for them. This could be a 2 year fixed rate, a 5 year fixed rate or even a tracker. It's been widely reported that a recession is around the corner. It's our job to explain that during a recession not as many people are in a position to borrow money. Therefore, banks lending levels may dip and with a lack of demand, typically interest rates will fall. In this scenario you may be then disadvantaged by taking a 5 year fixed rate. 5 year fixed rates still have a part to play in this ever changing mortgage market, but it shouldn't be the default, go to rate. It needs to be right for the client.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
It is a difficult one to say, I still find for btl properties the clients 95% of the time want to fix for 5 years purely based on the stress tests being less vigorous meaning they can borrow more based on the rental income from the property. I will also take a view of what the client thinks is best and I can from them give them my ‘for and against’ for both the 2 and 5 year fixed rates so they can make a more informed decision. In my personal opinion a 2 year fixed product at this stage may be best as experts are predicting rates will be on the rise from now until the end of 2023 and should return back to normal during the 2nd quarter of 2024.