Mortgages  

Guide to recommending long-term fixed rates

  • To understand what is driving long-term fixes.
  • To list the risks and benefits of using long-term fixes.
  • To be able to explain how certain fixes benefit different types of borrower.
CPD
Approx.60min
Guide to recommending long-term fixed rates

Introduction

Brexit, interest rate rises, low wage growth and high inflation are all nibbling at the confidence of savers and spenders alike.

With low levels of growth on cash accounts and inflation still persistently above the Bank of England's 2 per cent target, savers are looking for more ways to make their money work for them.

And when it comes to spending, people are wanting to get the most bang for their buck, or at least to make that buck stretch further. 

The same is true of the mortgage market. Given that a home is likely to be the biggest single spend of a person's lifetime, making sure the mortgage payments are as low as possible for as long as possible is a key factor for many borrowers.

It is no surprise, therefore, that lenders and advisers are seeing a rise in long-term fixed rate borrowing. This would have been unheard of in the 1990s when interest rates were at 15 per cent to 16 per cent; who would want to be locked into a higher rate for a long time if the bank base rate was falling?

But now we have been in a 0.5 per cent interest rate environment since March 2009 - with a brief dip into 0.25 from August 2016 to October 2017 - and the only way, as Yazz once sang, is up.

Most people do think rates will rise - so they want to be locked into a low rate for as long as possible. This is backed up by figures from Paragon, which showed that, in the third quarter of 2017, five-year products made up 39 per cent of all mortgage products – an all-time high.

This guide explores why people think the low-for-long bank base rate environment is over, what is driving consumer behaviour in the mortgage market and how advisers can help clients get the most appropriate mortgage product for their circumstances.

The guide qualifies for an indicative 60 minutes' worth of CPD.

Contributors to this guide: Mark Harris, chief executive of SPF Private Clients; John Eastgate, sales and marketing director for OneSavings Bank; a spokesman for Yorkshire Building Society; Andrew Montlake, director for London-based broker Coreco; John Heron, managing director, Paragon Mortgages; Jeremy Duncombe, currently director of the Legal & General Mortgage Club; Rachel Springall, finance expert at Moneyfacts; a spokesperson from Halifax; Jaedon Green, director of product and distribution for Leeds Building Society; Adrian Anderson, director of broker Anderson Harris; Paul Darwin, director of intermediary relationships for Skipton Building Society; the Bank of England; the Office for National Statistics. 

Simoney Kyriakou is content plus editor of FTAdviser.com

In this guide

CPD
Approx.60min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. What is one of the main reasons for the move to longer-term fixes, according to a Yorkshire Building Society spokesperson?

  2. What is as low as we will probably ever see it go, according to Mr Eastgate?

  3. Mr Duncombe says while long-term fixes can give certainty and security, what do they lack?

  4. What should be reflected in the advice provided, says Mr Green?

  5. What does Mr Harris say could be a good reason for a new family to fix?

  6. According to Mr Phillips, what has made the unaffordable affordable?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand what is driving long-term fixes.
  • To list the risks and benefits of using long-term fixes.
  • To be able to explain how certain fixes benefit different types of borrower.

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