Longer term fixes - The Times

ended 28. October 2021

A journalist at The Times wants to know if you 'orrible lot have seen an increased appetite for longer-term fixes among your clients? If so, why? And is it mainly 10-year or 5-year fixes that people are plumping for?

Deadline is tomorrow morning at 09:30 but don't write an essay. 3-4 sentences will do. Soundbites, not Crime and Punishment!

11 responses from the Newspage community

Star Quote
"I’ve only ever heard of horror stories with 10-year fixes. A decade is a long time and I know of people who, after arranging their own 10 year fix, two years later are now separating and have an absolutely astronomical early repayment charge. There are few people tying in for this long is suitable for, but equally there are a few people it suits. I mainly deal with first-time buyers in their 20s. This is a time when circumstances can change quickly as partners come and go, children can pop up, and incomes may increase rapidly, so shorter fixed periods are often more appropriate. This gives people more flexibility and also, doesn’t tie them in at a high loan-to-value product, when in a couple of years they may qualify for much better products."
Star Quote
"With 5-year fixed rates below 1%, many borrowers have been tempted to tie in for longer than they otherwise might have, especially with inflation and interest rate expectations rising recently, too. As such we've certainly seen a shift from 2-year fixed rates towards 5-year options."
Star Quote
"Whilst we have seen a real interest in clients looking at 5-year fixed deals, for most, a 10-year fix is still too long, even with rates at record low levels. Many consumers are still driven by monthly cost, so shorter deals tend to look better on paper. We also have to remember that borrowers have now been used to low rates for a very long time and many have taken that for granted. If the Bank of England needs to raise the base rate to combat inflation, some may well be in for a shock."
Over the past few years there has been a marked increase in the number of people taking 5-year fixed rate deals; some of this driven by the low rates we're seeing, some of it by the fact lenders will often agree larger mortgages if you opt for a 5-year fixed rate deal, as well as some taking the choice away (a lot of 95% LTV deals were only available on 5-year fixed rates for example). Longer term fixed rates have struggled, even with rates as low as they are. Lack of competition means rates are often seen as high compared to a 5-year fixed rate, but more than that clients are hesitant to commit to such a long contract and tie themselves to that deal and that lender for a decade.
Five-year fixed rates have been incredibly popular recently as borrowers look for payment security to bypass some of the economic uncertainty. Many of our clients have taken five-year fixes below 1% and on interest-only minimising their repayments. We do not arrange a huge amount of seven and ten-year fixes even though the rates are historically super-cheap.
"We've seen a big increase in longer term fixed rates being taken up as people look to take advantage of the low rates before they inevitably rise. 5-year fixed rates tend to be the most popular option as many don't feel comfortable being tied in for longer than that. Personally, I feel that longer term fixes are undersold and could be suitable for many borrowers, especially given that there are some 10-year fixed rates with 5-year early repayment charges, which give ultimate security and flexibility."
"For the first time in many years, clients are getting in touch to ask about paying the Early Repayment Charges on their existing mortgage, to put in place a longer fixed rate with another lender. They are concerned that rates have hit an all-time low and are now going to start rising again. They would rather pay a penalty now than a higher rate when their current deal ends in a year or two."
Throughout the last 18 months, there's been a marked increase in the number of 5-year and longer fixed-rate mortgage deals put in place, driven by consumers' heightened aversion to risk, coupled with historically low mortgages rates. Longer fixed-rate deals have come off the back of both concerns, partly about Brexit but ultimately our shared experience of COVID, which has hammered home for many, the fragility of our financial and societal ecosystems. As a result, people no longer take the old norms for granted, which, to my mind, is a good thing, and are instead opting for security and stability wherever in their lives it can be found . However, with regards to longer than 5-year deals, they're still the least taken mortgage products for a variety of reasons, not least; who can predict ten months into the future, let alone ten years, along with the very hefty redemption penalties of exiting those deals if circumstances necessitate it.
Historically low interest rates was only ever a short term treat, and as the mortgage rate war finally draws to an end, and with increasing predictions of a rate hike pre Christmas, the savvy mortgage holder will fix in for five years or longer now whilst rates remain ridiculously low. Whilst the jury is still out on whether seven and ten year deals represent value for money, and only time will tell, the ultimate long term security and peace of mind has become hugely attractive for some after the events of the past 18 months, with many prepared to pay a premium for this security. However, extremely high early repayment charges for a 7 - 10 year long deal, coupled with the premium interest rate compared to a five year deal, is still enough to put many people off, with five year fixed rates certainly the most sought after product and for many the right thing to do.
I have yet to come across anyone who has fixed their mortgage for longer than the usual 2,3 or 5 year period that did not regret it after as they either decide to take money out of the equity in the property to carry out work to improve their homes or due to changes in their circumstances, they have to move and now face the crazy penalties which can run into the thousands of pounds. The products which are longer than 5 years tend to carry a premium and do tend to put off borrowers, even those who have no intention of moving and have no appeal for the majority of first-time buyers or young couples buying their first property together until they get the lay of the land.
In the last month we have seen a 50% increase in clients fixing for 5 years. There is also growing demand for 10 year fixed rates where the most competitive deal is 1.94% with a £995 arrangement fee.