Are variable rate products dead?

It was not long ago that variable rate mortgages were all the rage, with many recommending this product type.

However, as fixed rates have come down and the base rate has gone up in recent months, the views from brokers on variable rates now differ.

Brave to recommend

Clive Read (pictured), owner at Goldmanread, said it was a brave adviser who recommended variable rates at present.

“Most variables are currently tracking at a margin below fixed rates, but the unknown question is how much further the base rate has to travel,” he said.

Read added he would consider recommending variable rates for those clients with smaller mortgages, where affordability was not such an issue should rates start to rise again.

Customers on variable rates, Read said, should remain on them if they were locked in via repayment penalties; alternatively however, he believed they should consider their fixed rate options.

“I have had clients on early repayment charge free variable rate deals who have come off of these to lock into a fixed rate,” he added.

Elliott Benson, owner and mortgage broker at Sett Mortgages, questioned the point of variable rate mortgages at present given conditions.

“A customer choosing a variable would be going onto a rate which is almost certainly going to keep increasing for the time being,” he said.

Benson added customers would then likely be trapped on this rate for a two year period through early repayment charges.

Imran Hussain, director at Harmony Financial Services, said the majority of clients wanted some form of certainty around what their mortgage will cost them.

“Hence fixed rate mortgages are as popular as ever; there are some exceptions where tracker rates are considered and even taken by clients whose risk appetite and income allows a fluctuation in mortgage payments, however,” he said.

Right option for some

Ross Lacey, director and chartered financial planner at Fairview Financial Management, still saw a place for tracker mortgages.

However, Lacey said they should be reserved for clients who had the risk appetite and wiggle room in their budget to allow for higher rates in the future.

“We generally would not be recommending a tracker product where there were early repayment charges in place, as one of the big reasons to use them has been the flexibility offered to come out of the deal without any penalties,” he added.

James Miles, director and mortgage adviser at The Mortgage Quarter, said variable rates were still popular, and tended to offer more flexibility when compared to a fixed rate.

There is more to consider with variable deals, but Miles said they worked well for customers looking to make large overpayments.

“However, gone are the days of capped variables, so this would be a welcomed addition from a challenger lender out there,” he added.

Stephen Perkins, managing director at Yellow Brick Mortgages, said variable rates and discount rates could sometimes be suitable for clients who wished to avoid tie-ins and early repayment charges.

“Tracker mortgages are also becoming more popular as it looks like we are close to the base rate peak,” he added.

Like in all scenarios, Perkins said a detailed discussion with the client was key to evaluating all options and recommending the most suitable to their unique situation.

“A large factor is how much disposable income the client has, and whether they could afford a possible increase in their mortgage payments, in the hope of potentially benefitting from future rate reductions in the medium term,” Perkins said.

Do you believe there is still a place for variable rate mortgages in the current market? Let us know in the comment section below.