The debate over sticking or fixing rumbles on with the latest salvo fired by Chris Rhodes, product and marketing director at Nationwide. He apparently suggested in a newspaper interview that it is not because of rising interest rates that some brokers are pushing for borrowers to fix. When asked why so many brokers are urging borrowers to fix, he is quoted as saying: “Churning mortgages gets them a fee.”
However sad such comments are, there is probably an element of truth. Many brokers say they cannot wait for rates to go up so the remortgage market starts coming back to life. The remortgage market has ground to a halt as borrowers have chosen to sit on low standard variable rates rather than switch to a tracker or a fixed rate. I understand the sentiment but when the base rate goes up, I do not think phones will ring off the hook with borrowers desperate to fix.
Lenders will become more aggressive in their retention programmes to hang on to some of these borrowers. That is good if your client is one of the lenders that reward brokers for the part they play in client retention, not so good if it does not.
Borrowers whose lenders do not offer them a market-leading rate will be keen to see what we can offer them. Many of them will not be able to remortgage, either because of a lack of equity or because they do not fit the squeaky clean criteria most of the high street lenders have brought in.
Those borrowers who have trackers with drop locks, allowing them to switch to a fixed rate without an early repayment charge, have a false sense of security. Many of them are waiting for the first rise before they switch but the longer they delay, the higher the rate they will switch to.
I have been one of those people suggesting borrowers fix sooner rather than later. I have been accused of trying to scare borrowers but I genuinely believe fixed rates are only going one way. In the past three months, the cost of a best buy five-year fixed rate has gone up by about 0.75 per cent and the average has gone up by more, meaning another 4 per cent has been added to the cost of the loan over five years. The lenders do not want huge volumes this year, so we cannot rely on competition to keep rates down.
Jonathan Cornell is head of communications at First Action Finance