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Opinion: Remortgages can avoid fixed-rate roulette

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The Bank of England’s decision to lower the base rate to just 0.25 per cent means we are once again in uncharted waters.

Of course, the expectation for many is that this rate cut will bring with it a reduction in mortgage rates.

However, recent research by Legal & General has shown that fixed rates in particular have already seen a substantial decrease since 2009.

As a result, this research suggests that now is the time for borrowers to seize the opportunity to benefit from record-low mortgage rates by speaking to a broker and potentially saving thousands of pounds.

Analysis of monthly two- and five-year fixed rates since January 2010 showed a gradual fall on average of 2.5 per cent.

Two-year fixed rates fell from 3.97 per cent to 1.74, whilst the average five-year fixed rate moved from 5.56 per cent in 2010 to 2.57 per cent in June 2016.

There is also evidence that lenders further reduced their rates earlier this year, with a marked fall in rates in the run up to the EU referendum. Average two-year fixed rates fell from 1.88 per cent to 1.74 per cent in this period, while five-year fixed rates saw a fall from 2.71 per cent to 2.57 per cent.

These reductions were in spite of a steady, albeit low, base rate of 0.5 per cent, and indicate that lenders had already begun to price in a potential reduction in their mortgage rates well before the Bank of England’s recent decision.

Perhaps more interesting, however, is the fact that fixed rates have also jumped upwards during this six year period, with the fluctuations driven by sentiment in the wider financial markets.

We’ve noted a 0.8 per cent increase in two-year rates from September 2011 to June 2012 for example, amid other variations.

These increases have largely corresponded with wider turbulence in the markets, including issues around banks stress testing in early 2012. In most cases, these developments affected lenders’ capital and therefore the availability of funds.

It’s important that borrowers and advisers recognise the unpredictable nature of these changes, as fixed rates could increase in the future even if the base rate remains at its record low, or does the unthinkable and falls again. As such, now is an excellent time for borrowers to re-assess their finances and speak with a broker about remortgaging.

A recent study by Legal & General Mortgage Club found that on average consumers could make a significant saving if they switched their SVR mortgage to a fixed rate – in some cases, the equivalent of a summer family holiday. There are plenty of good deals out there, and by speaking with an adviser, borrowers will have a good chance of securing a favourable arrangement on a mortgage that is right for them.

At the same time, brokers also need to make the most of these uncertain times. Brokers shouldn’t work on the assumption that their customers will call them, but should instead proactively look after their back book, speak with their clients and deepen the existing adviser-customer relationship by helping their clients to potentially save thousands of pounds by remortgaging.

Advisers should also take this opportunity to futureproof their businesses against potential challenges and threats further down the line, rather than taking the good times for granted.

Whether it is protection, conveyancing or buy-to-let mortgages, brokers would do well to maximise their business leads. This will be achieved by providing advice on a range of financial matters, for both new and existing clients, rather than simply following-up on the products that customers already own.

After all, one thing is for sure: if brokers aren’t willing to engage with their clients and keep in close contact with them, someone else will be.

Jeremy Duncombe is director of Legal & General Mortgage Club

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