Read small print on long-term deals

There are some attractive long-term fixed rate products available but brokers and consumers must not assume that such deals are as portable as they first appear, says Katie Tucker

Long-term fixed rates are starting to look sexy again. For example, The Mortgage Works has a 5.99% 15-year buy-to-let fixed rate deal. This will suit investors who are in buy-to-let for the long run, not just for the monthly income. Since property values are expected to adjust in the short term, to succeed in the sector buy-to-let should be treated as a longer term investment.

Even for residential mortgages, arrangement fees are now so high that I can see the temptation of getting out of the two-year rate tart cycle.

First Direct’s 10-year fixed rate product at 5.34% is particularly attractive given its £598 fee because it’s an offset deal. So even if the Bank of England base rate drops to stupidly low levels, which would normally annoy borrowers with fixed rates, at least clients can bundle all their savings into an offset.

This way the savings rate will remain fixed with the mortgage deal. So if it is fixed at 5.35% and the savings rate drops to 3%, they’d still get the former rate on their savings.

The key to a successful long-term fixed rate deal is its portability. Brokers rely on it as peace of mind for their clients just in case they have to relocate and for longer term deals you almost have to assume portability.

But the statement ‘subject to terms’ is usually not read carefully by borrowers or pointed out clearly by lenders. Subject to what terms? Where are they on Key Facts Illustrations? Alas, clients have to read another document if they want point-of-sale information.

And the devil is in the detail. For example, I recently had a letter submitted to the Ask Katie page on my firm’s website from a borrower who was relocating. He could not believe he wasn’t allowed to move his portable mortgage to a new property because his wife was now a full-time mother.

He explained they’d had no trouble meeting the mortgage payments over the past year but because he did not meet the lender’s income multiple criteria on his own it would not let them move.

The irony was that the lender had explained it was happy for him to cancel the relocation and remain in the current house, even after he had been deemed officially unable to afford it. I explained that the issue was that he couldn’t start a new contract but could continue the old one.

Last year we had a similar scenario with a Nationwide client. We fought tooth and nail for the borrower on the grounds of treating customers fairly and common sense. He’d proven he could afford the repayments but in the end he had to pay the early repayment charge and start again.

So don’t kid yourself. The times when life might require borrowers to move are likely to be the periods when portability lets them down.