Ray Boulger, senior technical manager at John Charcol, says there is so much uncertainty around what will happen in the next five years that brokers should consider locking their clients in for a long period.
He says: “It’s hard to judge what will happen in the next five years. Things could go from bad to worse and we could have low interest rates for a long time or quantitative easing could prompt too much inflation and cause interest rates to rise.”
The most recent Legal & General Mortgage Purchase Index shows 72% of borrowers chose fixed rate deals in Q1 2009 compared with 65% in the previous quarter.
In The Loop Mortgages, the intermediary lender of Stroud & Swindon, has just launched a 20-year fixed rate mortgage exclusively for appointed representatives of Mortgage Intelligence, offering a rate of 4.99% at 75% LTV.
The product provides a break every five years allowing customers to redeem without penalty in a one-month window. Brokers will also get their full proc fee every five years.
To get their proc fees brokers must look again at the product to assess whether it still constitutes best advice, in line with Treating Customers Fairly guidelines.
All cases must be booked through MI and will be distributed on a first come, first served basis.
Sally Laker, managing director of MI, says: “This is a modern product providing security against rate increases and flexibility for changing lifestyles but also ensuring that brokers get paid for regularly checking that their clients’ needs still match the product.”
Boulger expects the product to do well and is disappointed it is only being offered to MI’s ARs.
He says: “Consumers may be put off by the idea of a 20-year fixed deal but as there is an option to renew, they could regard this product as a five-year deal.”
Joe Cohen, managing director of brokerage First Action Finance, says interest rates could be around 4% by the end of 2010 so borrowers should secure fixed rate deals now.
He says: “Interest rates have never been so low but the days of cheap money are coming to an end.
“The government is printing billions of pounds which will build up inflation and the only way to bring inflation down again will be to raise interest rates. It is possible that interest rates will be 4% by the end of 2010.”
He adds: “If your clients take out two-year fixed rates now they will be screwed in two years’ time. But if you advise them to take out five-year deals they will be thanking you in a couple of years.”