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Clients display new-found caution

The news that fixed rates now make up 50% of new mortgages is welcome. The good news is that fixed rates offer clients stability in managing their monthly budgets by ironing out the peaks and troughs of the SVR. This is not exactly rocket science, as they say.

The problem is that many clients have traditionally seen fixed rates as a way of beating the book. In other words, a way of seeing if they can do better on a fixed rate than on the lender’s SVR.

But what’s this? Do I detect a shift in clients’ opinions regarding how they can benefit from fixed rates? The higher levels of fixed rates available confound analysis.

The fact is that base rate increases have for the most part been solid and steady. The most recent move has been downward, albeit by only a symbolic quarter point. Increased take up in fixed rates used to be indicative of an upward move in base rates so what has caused the recent upsurge in fixed rate take up?

Perhaps there has been a shift in clients’ understanding of what fixed rates offer – stability. And that stability will be increasingly valuable.

Clients have been forced to recognise two issues. First, the level of borrowing required to get on the housing ladder or trade up requires many to borrow at higher income multiples. Second, many are opting to pay down outstanding debt balances. Just look at how the high street retailers have been hit by the downturn in consumer spending. Consumers appear to be displaying a fresh understanding of their finances and how they can manage their money better. For many, the days of gambling on the SVR and juggling their finances are things of the past. Perhaps we have turned a corner in borrower attitudes.

One area that has been particularly successful is the marketing of fixed rates by sub- prime lenders. Fixed rates are a powerful tool for those trying to get their finances back on an even keel following problems they may have experienced.

But this is not nirvana. Many of the fixed rates on offer are of three years or less in duration. Rates of this duration are clearly popular. The findings of the Miles report seem an age ago and have little relevance to today’s market. Longer term fixed rates such as those seen in the US market have little or no marketability here. There would have to be a significant change in the paradigm regarding consumers’ attitudes to fixed rates for these to become common and that, frankly, is a bit of a stretch. It will be interesting to see how Britannia fairs with its 10-year fix product that has been reported in recent weeks.

Whatever the reasons for the high level of fixed rate sales, it should be applauded. I wouldn’t mind betting the level of fixed rate take up will continue to rise in the coming months. If in doubt, safety first. simon biddle

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