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Uptake in long-term mortgages bad news for brokers

Uptake in long-term mortgages bad news for brokers

Mortgage brokers could see a decline in the number of clients needing advice as more and more consumers opt for long-term deals.

In the past, consumers typically took out two-year fixed rates — primarily because they were the cheapest deal by a substantial margin — and therefore needed to remortgage their property every two years and providing mortgage advisers with a continuous stream of business.

However, the current state of the market coupled with a narrowing of the price gap between the average rates of two-year and longer term products have lead to more consumers choosing a longer term deals.

Latest research by Moneyfacts, published earlier this month (June 4), showed the difference between the average two-year and five-year fixed mortgage rates had narrowed by 0.06 percentage points since the beginning of the year and now stands at the lowest difference recorded in seven years, at 0.36 percentage points.

On top of this, more providers are offering 10-year fixed deals than ever before. While still a small part of the market, analysis from Which found the number of products had increased by more than 50 per cent in the year to January 2019.

Unlike investment advisers mortgage brokers are allowed to earn ongoing commission on their sales but the shift to longer fixed terms has nevertheless led some mortgage brokers to raise concerns that revenue for them is declining.

Ray Boulger, senior mortgage technical manager at broker firm John Charcol, said: "One of the challenges for brokers in the next few years, now five-year fixes have taken over two-year fixes, is there is going to be less remortgage and product transfer business. 

"The volume of activity is going to take a downturn. If it takes five years to come around, rather than two years, there will be less business for everyone.

"The increased level of 10-years coming to market only exacerbates this potential problem."

Mr Boulger added five-year products were more appealing than shorter duration ones if they were offered at a similar price.

He said: "You’ve not got to worry about remortgaging in two years' time, and you have the extra security that your monthly payments are going to be the same and you can budget for the next five years.

"On top of that, savvy buyers may be looking at how best to pay off the house and the lower the interest rate for longer, the more capital the borrower will be paying off with each payment."

He added that purchase activity remaining flat was a "trend that will continue to make the market challenging" as "less activity means less business".

Ruth Whitehead, of Ruth Whitehead Associates, agreed. She said: "The property market — in London at least — is slowing, and first-time buyers are biding their time, waiting for property prices to fall further from the Brexit effect. 

"This, coupled with an expectation that the base rate will rise over time, means purchasers are keener to consider longer term fixes than they have in the past and it’s quite possible some mortgage brokers will struggle to find clients looking for new mortgage deals."