Over the recent past, many clients taking out mortgages have done so via a fixed product. Interest rates are fixed for an initial period, usually 2 or 5 years, but sometimes longer. The main benefit is knowing exactly what you’ll be paying for your mortgage during the product period even if rates change.
We always provide advice to clients on other options, such as tracker and discount variable rates, but with fixed products usually being cheaper and the added benefits of a set monthly payment, often it makes little sense not to proceed with a fixed product. Even if rates on variable products were lower, most clients were unwilling to take the risk that rates could increase in the future.
In September 2022 there was a sudden spike in rates, mainly due to the mini budget. Not only did rates increase by around 2% within weeks but many lenders were withdrawing all their fixed products in fear that the rates could increase further and leave them making a loss on the products they had been offering. This jump in rates for fixed products to around 6% had not been seen for nearly 10 years and left many people who were about to apply for a mortgage, in a very difficult position.
What happened next surprised many who worked in the market; tracker and variable products suddenly became an attractive option to clients again. The main reason for this is that rates for these types of product were less impacted by what was going on in the mortgage market and therefore were priced lower. Whilst the best 2-year fixed products were around 6%, there were options for 2-year discount variable products at below 3%. For most clients the benefits of a fixed product still meant they were happy with the higher rate but for many, the huge difference between the rates meant they were happy to proceed with a variable or tracker product. Some lenders helped by offering their products with no early penalty fees which meant they could switch to another product if they were getting nervous about rates rises and wanted to move to a fixed product.
Fast forward to January 2023, the base rate now at 3.5% and with many lenders increasing their standard variable rates, the rates available for variable products with most lenders are higher. What has also happened is that fixed rates have slowly been reducing with options now at around 4.50%. This has meant there is a much smaller margin between a fixed rate and a variable product and, with the base rate expected to increase in the next 6 months, a fixed product is becoming a lot more attractive again.
Are we going to be back in the position where the majority of clients are taking out fixed products? If fixed rates continue to reduce and the base rate increases further, it is hard to argue against this. What has happened in the last 3-4 months is that clients have become aware that there are options other than fixed products and this will mean more clients will consider these if they are right for them. For example, if you are planning on moving house soon, it doesn’t always make sense to lock into a fixed product when you can proceed with a variable or tracker product with no early penalty fees.
Here at JF Financial Solutions, we can offer advice on all types of mortgages. If you need help and advice on which is the best option for you, please call us on 0161 711 1720 or visit our website at www.jffinancialsolutions.com