Brokers bag two fees for the price of one

Hindsight is a wonderful thing. Especially if it gives you the opportunity to do a bit of churning.

Excuse my bad language. What I meant to say was – especially if it gives you an excuse to reappraise your clients’ needs. And it looks like the increase in the base rate will allow many mortgage brokers to do just that.

Mortgage borrowers’ attitude to risk has changed dramatically in the past couple of months. Back in May, only 10% of consumers were opting for variable rates when they signed up for mortgages, according to Mortgages Direct, the broker that serves spicerhaart estate agents. But in July that figure shot up to 28%.

Statistics from the Council of Mortgage Lenders back this up. They show that the number of fixed rate deals taken out fell over the same period. Why?

What has persuaded such a large proportion of new borrowers that they are able to cope with the vagaries of interest rate changes when fixed rates would have been their choice only weeks before?

Two things, perhaps. First, interest rates seemed static so why not take a variable rate that looked cheaper than available fixed rates? And second, mortgage brokers suggested the above.

I can hardly blame brokers for the pickle that some borrowers are in because they didn’t face up to the potential downsides of having a variable rate – downsides such as the base rate rise which is bound to be passed on by most lenders early next month.

Or maybe I can. Brokers have a duty to find their clients the most suitable products that offer the best value. In hindsight it seems clear that that has not been happening in the past couple of months. You might see a small variation in attitude to risk over a month or two, but not a leap of 18%.

Some clients will always be comfortable with variable rates – perhaps they have flexibility in their disposable income which means they can cope with a couple of interest rate rises. But others will be better suited to fixed rates even if they cost a little more.

So why would lenders and brokers persuade customers to opt for variable rates instead of fixes?

Is it too unkind to suggest that since the money markets were predicting a rate rise, putting a client into a variable rate would have them begging for a fixed deal before long? Why settle for one commission fee when you can bag two?

Obviously, the price of fixed rates will have been a factor but I can’t help thinking that fewer people would have opted for variable rate deals if they had been given better advice.