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Advisers play key role in uncertain times

The decision to increase interest rates came as no surprise but what some commentators were predicting as a 0.5 per cent increase became a rather more gentle 0.25 per cent increase.
It remains to be seen whether the MPC will increase rates again next month or whether it believes inflation is now under control but there are certainly commentators who believe that the future of interest rates still looks decidedly uncertain.

Some are predicting that there could still be another increase in the base rate over the next few months so is now the time for homeowners to start thinking about fixing their mortgage payments?

Whether a fixed-rate deal is right for your client very much depends on their circumstances and their attitude to risk. Choosing a fixed rate means that mortgage payments are guaranteed for a period of time, giving certainty when your client may be buying their first home or meeting other financial commitments.

It also takes away the potential worry of a tracker or variable-rate mortgage which does not offer any guarantee to your client about the level of their monthly mortgage payments.

Nationwide recently launched a 25-year fix which proved to be very successful with our borrowers. Many commentators questioned the viabililty of such a product and whether borrowers would want to fix their mortgage rate for such a long period.

But the product proved very successful with our borrowers, partly because the early repayment charges only covered the first 10 years, and it quickly sold out. It is certainly a product we are thinking of launching again.

But why would a borrower want to fix for such a long period of time? Despite Professor Miles’ recommendation that lenders should be offering longer-term fixed rates, the 25-year fix has only been made available by a handful of lenders.
However, there are borrowers who simply don’t want to have to worry about their payments and whether interest rates will increase.

It is the role of the intermediary that is key when deciding on whether a fixed rate is good move for a client. Assessing their appetite for risk is a good start – tracker rates are traditionally cheaper than fixed rates but your client is at the mercy of increases in the base rate which could add a significant amount to their monthly mortgage payments.
Conversely, though, if interest rates change direction, a long-term fix could turn out to be more expensive.

Some commentators have sugges- ted that longer-term fixed rates are not something that an intermediary would want to sell their client as there is not the same opportunity for repeat business as there is with clients on shor-ter-term products.

However, intermediaries do need to ensure they are giving their clients best advice by finding the most suitable products for their circumstances. In some cases, they may find that a longer-term fixed rate really is the best option.
So will longer-term fixed rates continue to be successful? There is cert- ainly an appetite among borrowers for fixed rates, giving them certainty over a period of time.

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Farewell all

I write this blog with tears streaming down my cheeks. Why? I hear you ask. Well – ’tis because it’s my last pensions blog for Money Marketing. Next Monday I move to write about pensions and investments for another paper and will be replaced by our lovely life and protection reporter Nicola York who, I have been repeatedly assured by various contacts, is much more attractive than me.

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