Short-term fixes are OK for some

Despite what John Wriglesworth says, brokers will not be doing their clients justice if they dismiss the possibility of recommending two-year fixed rate deals, says Sally Laker

I read with interest John Wriglesworth’s recent comments (Mortgage Strategy May 21) in which he branded brokers who recommend two-year fixed rate deals in the current climate as a bunch of mis-sellers.

This is a pretty strong comment to make. I take his point that by the time a customer’s short-term fix ends economic circumstances could be different, with higher rates of interest that could make remortgaging or moving home at the end of the deal difficult.

Wriglesworth points out that brokers should be making their clients aware that interest rates can go up and pointing out what effect this could have on their circumstances.

I think most brokers will already be making their clients fully aware of the consequences of a decision to opt for a short-term fixed rate product.

After all, other than employing the services of an infallible clairvoyant it is impossible for any of us to know what the future holds or which direction interest rates will move in.

Granted, at the moment all the signs are that the most likely direction in which interest rates will move is up – either that or remain stable. This is because we are seeing inflation creep back into the economy as the nation continues to spend on credit cards, sucking in goods from abroad.

It’s also true that the steady increase in interest rates we have witnessed over the past 18 months has done little to dampen demand in the housing market, especially in the south-east of England where a continuing high level of demand is matched by a shortage of supply. It takes a while for base rate rises to filter through to the wider economy.

However, the recent rise in oil prices should see fuel and heating costs rise – major drivers of inflation. And this is without even thinking about the consequences if the row over the charging of former KGB man Andrei Lugovoi with the killing of dissident Alexander Litvinenko in London should escalate and Putin turn off the gas supply as a retaliatory measure.

And that’s the point – nobody knows how things will pan out. If a week is a long time in politics, the duration of a two-year fixed mortgage deal could see a whole host of occurrences that could have serious consequences for the economy.

Remember, it only took a single catastrophic event – the destruction of the World Trade Centre in New York – to send the world’s markets into cardiac arrest. We were pulled back from the brink of a global slump by the decision to slash interest rates. This acted as a shot in the arm to markets everywhere and we spent our way out of recession. Who’s to say a similar shock – the collapse of a hedge fund, for example – is not waiting around the corner.

Even discounting this unpalatable possibility, there are more mundane reasons for recommending short-term fixed products – clients’ circumstances for one. A product must fit a person’s needs and it’s the broker’s responsibility to find and recommend a product that meets those needs, even if it turns out to be a two-year fixed deal.