Which sort of client benefits most from a long-term fix?

It is true that people who are concerned about sharp interest rate rises in the future cut across the spectrum of borrowers, and therefore brokers are likely to face questions about the suitability of long-term mortgage fixes from a range of clients - from older single borrowers to young couples and first-time buyers.

But before one makes any decision, there are important considerations to make, as a spokesperson for Halifax outlines: "Those considering taking a longer-term fixed-rate product should always consider whether they are likely to make any significant changes to their circumstances over the next few years."

Such changes include: 

• Upsizing.
• Downsizing.
• Moving home.
• Paying off the mortgage early.
• Changes in employment.
• Starting a family.

Jaedon Green, director of product and distribution for Leeds Building Society, states: "The key benefit of a fixed rate is certainty of payments and the ability to budget. 

"If these are important and fit with their plans, then a fixed rate could benefit some borrowers in all segments of the market."

But are there some people for whom this might be less appropriate than for others?

Family matters

According to Mark Harris, chief executive of broker SPF Private Clients, getting a long-term fix of 10 years or more is less likely to be a suitable mortgage option for a first-time buyer, than it would be for a family that is remortgaging.

He explains: "A 10-year fix might be a good idea for a settled couple with a young family who have just moved to a bigger house, say with three or four bedrooms.

"They are unlikely to move in the next few years as they already have enough space, but they would like help with budgeting and knowing what their mortgage payments will be each month."

If a buyer has plans to sell their property in the next few years to move up the housing ladder, then fixing for the longer-term might not be the best course of action. Jeremy Duncombe

Knowing for sure what sort of monthly outgoings one can expect over the next five, seven or 10 years is a strong argument for cash-strapped families deciding to fix for the longer-term.

John Eastgate, sales and marketing director for OneSavings Bank, says families would "welcome the opportunity to budget" for this period of time, if they are aiming to protect themselves against life events, such as saving for education fees or planning to expand their family.

Jeremy Duncombe, currently director of the Legal & General Mortgage Club, agrees: "A family that has no intention of moving in the short-term may be happier with the certainty that comes with a longer-term fixed-rate product, particularly with the prospect of further rate rises affecting their potentially stretched personal finances."

First-time buyers

While it might seem attractive to people starting out as a homeowner to fix for the longer term, particularly with low wage growth and uncertainty about the direction of interest rates, locking in for a long period of time might not be appropriate for first-time buyers.

Mr Harris says a 10-year fix would make less sense for a first-time buyer, particularly if they are buying with a friend. He says: "Situations change. One or either of them might meet someone and want to settle down. Much can happen in 10 years."

Yet there may be instances where fixing over five, seven or even 10 years might make sense to a first-time buyer.

This is outlined by Mr Eastgate, who says: "A first-time buyer where the expenses are new and the fear of affordability is high would welcome the opportunity to budget what is very often their largest expense per month."

The fearful

For Paul Darwin, director of intermediary relationships for Skipton Building Society, people who are concerned about the economy could benefit from fixing over the long-term, whether or not they are first-time buyers, older people or families.

Mr Darwin explains: "All people who take a longer-term fixed rate benefit if, over the five-year product benefit period, interest rates rise to such an extent that those on a two-year rate at the outset and then have to remortgage to another two-year end up paying more in interest over the five-year period than those opting for the five-year deal.

"Any borrower who takes a maximum loan based on their current income and opts for a variable rate product or shorter-term fixed rate can be vulnerable to payment shocks if interest rates increase steeply in a relatively short space of time."

Indeed, activity reported by Paragon last year in its third quarter 2017 fact index shows remortgaging still remained the most common type of borrowing, with people opting for fixed rates over variable ones for just that reason.

The index showed fixed-rate mortgages reached a record high of 89 per cent, and the preference for the five-year fixed rate product grew for the fifth consecutive quarter to the end of October 2017.

Initial terms of five or more years now comprise 41 per cent of all mortgage business covered by Paragon's index, up from 31 per cent in the second quarter of 2016.

The below graph shows the preference for interest types to the end of Q3 2017 (although the length of fixes is not broken out). 

Source: Paragon

It is clear the demand for fixed rate mortgages has inclined significantly over the past six years, with commentators estimating this will continue to remain the overwhelming preference compared with variable rate and tracker mortgages.

The landlord

There may even be a case for landlords opting for longer fixes should it be economically viable for them to do so. 

Mr Eastgate adds: "A first-time landlord or even an experienced one may benefit from protecting their mortgage costs from fluctuations in interest rates to manage their business more effectively."

Indeed, activity reported by Paragon last year in its third quarter 2017 fact index shows mortgage advisers saw 56 per cent of buy-to-let landlords remortgaging to achieve a better interest rate in the third quarter of 2017.

Forward planning

Ultimately, for Mr Duncombe, the suitability of a long-term fix should depend on the borrower's intentions and not on any short-term decisions about interest rates or political uncertainty.

"If a buyer has plans to sell their property in the next few years to move up the housing ladder, then fixing for the longer-term might not be the best course of action.

"For some, a two- or even a three-year fix could offer a better rate in the short-term to help them manage the costs of repaying what could be a larger 90 per cent or 95 per cent loan-to-value mortgage," he says.

Everyone who needs stability and security their monthly payments will not increase will benefit from a fixed rate. Andrew Montlake

Indeed, as John Phillips, group operations director of Just Mortgages and Spicerhaart, states, having some form of five-year plan is a good place to start for a potential borrower.

If they know they intend to get married and start a family, or they are looking to change jobs or potentially relocate, then this should underpin any mortgage decision.

He says: "Long-term fixes only benefit people who know they are going to stay in their house for a long time, or a customer with variable income, therefore giving them surety of payment."

Mr Duncombe adds: "In any instance, the best course of action for borrowers is to consult with a mortgage broker, who can get an understanding of their personal circumstances and help them navigate the ins and outs of the mortgage market."

Andrew Montlake, director at London-based Coreco, concurs: "Everyone who needs stability and security their monthly payments will not increase will benefit from a fixed rate. 

"There is no distinct group, and it comes down to attitude to interest rate risk, the length of time you expect to stay in the property, affordability and whether you need flexibility."

simoney.kyriakou@ft.com