First published in Mortgage Solutions
Prior to the Budget it felt like there was some momentum being built in the lending market around the provision of long-term fixed-rate mortgages.
Both new and existing lenders were talking about it, one specifically coming to market with a new proposition and rumours about more to follow.
Plus, we had the launch of Habito One with its range of long-term products. Was this to be the point where long-term fixes finally gained some serious traction?
Well, maybe. Although, since the introduction of the government’s guarantee scheme to encourage lenders into the 95 percent loan to value (LTV) mortgage space – a product likely to appeal to the same borrower demographic as long-term fixes, namely first-timers and second-steppers – there might well be a feeling that this has stolen some of its thunder.
It can also feel that the long-term fixed-rate market has some considerable obstacles to overcome that are simply not there with other mortgages targeted at advisers servicing these types of clients.
Namely, the competitiveness of the pricing versus the lender’s risk appetite and margin objectives, plus of course the term of early repayment charges and, rather importantly, fair procuration fees.
An exercise in patience
Of course, these are not insurmountable by any means – and I’m aware of those active or wanting to be active in this sector reviewing how their propositions can deliver positive outcomes – but they will need development and buy-in from the sector, not to mention consumers.
And that may well take significant time and investment on the part of the lender and the adviser.
Advisers naturally need to determine the suitability of clients for long-term fixes. I’m certain that this will only prosper if it is an advice-led product.
This is why the intermediary market has tended to regard long-term fixed rates in the same bracket as products like current accounts or offset mortgages, in that they undoubtedly require adviser intervention and explanation before any borrower should take one out.
Match the mortgage to the client
What might on the surface look like a no-brainer to someone who might not be overly well-versed in the mortgage market, and who might respond well to an advertising-led focus on ‘never having to change your mortgage again’, may clearly be the wrong product at the wrong time for the wrong circumstances.
However, that’s not to say there isn’t a pool of borrowers for whom a long-term fixed-rate could be precisely the right outcome.
However, it is advisers who will need to show the benefits of these products, which is why I feel an adviser-focused distribution focus is the right way to go, rather than the hope that direct-to-consumer might work.
There are inherent risks in that approach and, if I were a lender, I would be much more confident knowing my product range was being distributed by professional advisers able to ascertain the suitability of the mortgage to the client.
Rather than offering it up as the best thing since sliced bread to consumers direct, only for them to find out later down the line that it was a foolish decision.