With interest rates rising and a growing % of people looking to lock in for longer (5-10 years), are you finding you are having to advise against longer term fixes as it just doesn't sit with a borrower's circumstances? Is there a risk borrowers who aren't taking advice are defaulting to terms that could bite them on the @ss as rate fever and the cost of living crisis lead to emotional decisions? Is ‘term risk’ as dangerous as rate risk (if you end up paying hefty ERCs that negative any savings)?
2 responses from the Newspage community
All too often we find people all led by emotional decisions rather than rational ones. Either that or Joe Bloggs down the pub or my auntie Jeans friends wife cat said that we should have a seven-year fix rate. The reality is relationships breakdown, people want to move house, children arrive unexpectedly; all these factors taken together mean that for most people most of the time fixing for longer than five years is something they shouldn’t be considering. People should remember that as mortgage brokers we’ve done this a 1000 times, and as such, we know the pitfalls, and we understand the scenarios. We will be making an informed decision on what we recommend based on our experience and knowledge. Not to mention because the financial conduct authority regulates us we take responsibility for the advice we give, whereas if they decide to go online because they know better and pick whatever deal they want to apply for, they’re lumbered with the choices that they make.
A common misconception amongst borrowers seeking longer-term fixed rates is that transferring or 'porting' the rate to a new property should they wish to move is a straightforward, almost automatic process. Borrowers fail to realise that any porting application is exactly that, a brand new application that will be fully underwritten at the time of moving, and potentially declined if their circumstances have changed. This could leave them paying substantial penalties or early repayment charges to redeem their loan to seek a new lender, or abandoning their plans to move altogether. This is a risk any good adviser will be on alert for, asking any potential borrower whether they intend to move home in the foreseeable future.