Longer term fixes are increasingly finding a place in the market
“We are a fan of longer-term fixes here, though there is the obvious consideration to our remortgage pipelines,” said Sarah Tucker (pictured), founder and managing director of The Mortgage Mum.
Traditionally in the UK the most common lengths for a fixed rate mortgage are two or five years, however in recent times longer term fixes have taken centre stage. Last year, Habito launched the longest-ever fixed rate mortgage, allowing borrowers to access fixed-rate periods of up to 40 years.
Read more: Habito launches UK's longest-ever fixed rate mortgage
According to Habito, 30% of UK mortgage-holders said they would be interested in switching to a long-term fixed rate mortgage citing flexibility, certainty and protection against interest rate rises as their key reasons.
“Previously as a new broker, two-year fixed rates were the most popular product, meaning you could expand your broking business considerably in the first four to five years,” Tucker said.
Tucker went on to explain that with the rise in longer term fixed rates, how brokers expand their business is changing. She said this means brokers will have to work harder to attract new clients, new mortgages and fresh opportunities in order to achieve the same results.
“I do not think this is a bad thing. The mortgage world is always evolving and there are so many people who need a mortgage, protection and finance out there. We just have to find them. Or help them to find us,” Tucker said.
Now that the base rate has increased consecutively for the first time in years, the cost to borrow is expected to rise further in 2022. This means that locking-in to a long-term deal may be a good option as interest rates are expected to continue to rise.
Read more: "Borrowers should consider switching fixed rates"
The increasing rates can be attributed to the surge in inflation, rising fuel prices and the increasing cost-of-living.
Tucker believes that despite borrowers looking to lock-in to longer-term fixed rate products, there is still enough business out there for everyone.
“To get a perspective of how much business is out there for us all, you just need to fly in an aeroplane and look out of the window,” she said. “When we consider that all those tiny squares are homes that may need to be financed, we realise how many opportunities we have as brokers.”
Tucker explained that she has begun to see some longer-term fixes with lower early repayment charges attached to the product.
For example, she noted a 10-year product with a five-year tie in, which she said means clients get the security, and they also get the freedom to move earlier if they wish.
“Therefore, brokers get the opportunity to review the mortgage and circumstances before the end date of the initial product even on these longer-term fixed rates - a win, win,” she concluded.
