Here in the mortgage market, there are some debates which we appear destined to have over and over again. They crop up at regular intervals and, I suppose for those who might not have lived through them before, they appear to be ‘new’ when in fact the industry is playing out some kind of ‘Groundhog Day’, destined to revisit the same arguments with regularity.
The recent regulator-induced debate about the cost of mortgages and why the advisory community does not ‘simply’ recommend the cheapest product to its clients is a case in point.
As is the ongoing discussion about the appropriateness (or otherwise) of long-term mortgages, and by long-term I’m talking 20/25/30-year terms not anything between five and 10. There might be a degree of semantics at play here but the recent article I read in Mortgage Solutions about certain lenders developing ‘fixed-for-term products’ seemed to me (essentially) the same discussion the industry has been having over at least the last 20-years.
That is, whether UK borrowers – or indeed advisers – can see any benefit in committing to ultra-long-term, fixed-rate mortgage products which would last, if not a borrower’s entire mortgage ‘lifetime’ then pretty well close to it.
Governments of various flavours have often seemed determined to engineer such a cultural shift amongst borrowers; it’s just that life has tended to get in the way of this objective. In other words, clients might see how their life could be mapped out over a short period of time, but take that into double-figures, and this certainty dissipates away quite quickly.
Circumstances change and having a ‘fixed-for-term’ or a very long-term mortgage with ERCs might not necessarily seem like the right option at that point. It’s possible that advisers might find themselves in the firing line for such a recommendation, from clients who might have thought having the same product/rate for life was a good thing at the start of their mortgage journey, but a couple of years in, think very differently.
Of course, from an advice perspective, it’s not just the potential spectre of ERCs that might raise their head. At a time when we’re trying to encourage far greater levels of client contact, how does a ‘fixed-for-term’ product fit in with that? Would there be remuneration incentives within such a term for ongoing client contact? How might that be proved, and paid for, and what would it actually mean for an advisory firm’s overall income? Does it not open up the possibility of far less client contact when we actually want – and client’s typically need – more?
What we’re also talking about here is a ground-breaking culture shift. Prior to the General Election, the Conservatives were trumpeting these types of products, and no doubt, when the Government come calling, lenders are going to sit up and take notice. Hence, the whispers around ‘fixed-for-term’ products being ‘in development’, but we have also been here before.
I recall Professor David Miles’ report into long-term fixed-rate mortgages – almost two decades ago now – which essentially said, they could be positive, they could ensure less fluctuation if borrowers are not on variable pricing and subject to the vagaries of rates, and they could be a stabilising factor for the mortgage market, but there’s really no appetite for them. Are advisers convinced of the argument now, to any greater extent than they were against it back in 2003? I have my doubts.
Certainly from a network point of view, it is likely we would want to see overwhelming positives for a borrower being recommended such a product, and I suspect that perhaps to even get to that stage, we would want a large degree of flexibility built in, particularly around charges and adviser remuneration.
Even then, would the mortgage market head in that direction in any meaningful way? Perhaps but I remain to be convinced. The proof of the pudding will be in the set-up and criteria of these products – I await them with interest.