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Preparing your clients for the future

For some lucky borrowers out there the one-penny mortgage is really happening. In a bizarre twist of fortune the credit crunch has led to some lucky borrowers on tracker rates paying a nominal payment of 1p per month.

And only because lenders’ software systems can’t calculate what they should be paying, which is nothing. In some cases the lender should be paying borrowers.

The couple with the 1p mortgage are Ben Cameron and his pregnant wife Nicola, from London. They took out a two-year tracker from Cheltenham & Gloucester priced at 1.01% when they bought their £400,000 Richmond 2007. They have a £330,000 mortgage and have only been paying off the interest since the Bank of England dropped rates to 1% in February. That effectively puts them on a free loan, with an estimated 30,000 other borrowers in similar situations.

For your clients on fixed rates stories this will make them feel like the biggest losers in the current climate and only make their teeth grind.

But it could have gone the other way.

It’s worth remembering that fixed rate mortgages offer security whereas trackers will always offer an element of risk that interest rates can go up, as well as down.

For struggling borrowers, fixed rates can still be the order of the day, allowing clients to fix monthly outgoings, adding an element of certainty in otherwise uncertain times.

With current tracker rates between 2.5% and 3.5% over base rate, when interest rates do rise, these products will quickly become unaffordable and your clients could soon find themselves saddled with interest rates of 7% and 8%.

There is another problem here too. For those paying interest only, the capital is not reducing and in a falling market that can be exasperated and clients could even end up in negative equity.

Yet it’s problems like these where you can really show your worth to both new and existing clients.

As tempting as it is for clients finding themselves with reduced mortgage payments to splash their extra cash on that all-inclusive dream holiday or a brand new car, when it comes to remortgaging, lenders are not going to want those clients that have little or no equity in their property.

The Camerons have praised their adviser for putting them on the C&G deal.

“Our financial advisers told us to go for a tracker at the time. There’s a risk in any investment but this time it’s paid off. We have continuously paid our mortgage payments into a savings account. We’re saving what we were paying when the interest rate was 5.5%.”

It is sensible advice and makes now the perfect time to revisit existing clients and make sure that not only are they preparing for their future, you are also preparing for yours.

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