The industry responses to John Wriglesworth, head of the Wriglesworth Consultancy, seemed, in parts, to ignore the more long-term pricing that lenders are following these days.
Don’t get me wrong – I agree with Danny Lovey that advice must be tailored to a customer’s individual needs and circumstances – and that, in most cases, that does not mean a 25-year fixed – but it would be wrong to dismiss Wriglesworth’s point out of hand with all that is changing in the mortgage market.
It pays to remember that many endowment complaints are being assessed, not only with the benefit of hindsight, but often go in the complainant’s favour due to an incomplete advice file. Not many advisers would be able to justify a two-year fixed rate purely on the basis of cost anymore. Not only are rates generally lower on three and five-year rates but, more importantly, fees tend to be lower as well.
On a recent remortgage I did a total to pay over two years calculation for both a five-year deal followed by a three-year deal from the same lender to the top of sourcing results. The customers had no plans to move or to raise additional funds in the next five years and were unlikely to see a significant change in their income.
The lender in question allows deals to be ported, is one of the more generous in terms of income multiples and allows overpayments, underpayments and payment holidays. The customers have a child on the way and the wife will be giving up work until baby goes to school – approximately five years.
My advice then had to be that the five-year deal was most appropriate to their needs and objectives, but the client declined this, preferring to have the option to remortgage earlier, in expectation of an interest rate drop – and opted for the three-year deal. Fine, this is not a problem. But my ‘reasons why’ letter documented my advice to look at the longer term deal and a copy of the Key Facts Illustration (KFI) for the five-year deal was kept on file along with the sourcing results.
To me, that is more the value of the advice being given by Wriglesworth – as mortgage intermediaries we should also look at the medium to longer term. He may be extreme in his views and would probably insist on 10-year plus fixed rate deals, but the point remains – there have been enough changes in the market to demand that we consider the long-term cost of a mortgage for a customer as well as the cost over the two or three years that the client has been taught to think about.
Which is where that story is related the the ‘demands’ to remove the annual percentage rate (APR) from KFIs. Not only is that unlikely to ever happen, but it would also be foolhardy for any mortgage intermediary to ignore the value of the APR figure and the role it should play in their advice.
Yes, a primary consideration should be the cost over the deal term; yes, the customer is likely to move or remortgage at the end of the deal term; yes, interest rates are unlikely to remain static and the lender could change the basis on which its standard variable rate is calculated. But the cost over the life of the mortgage is an extremely useful piece of information for mortgage intermediaries and, of course, their clients, and should never be ignored.
Michael Curran
Mortgage Adviser
