I’ve written before about the constant changes in the mortgage and housing markets; some of those changes appear to be seismic – we know when they’ll be introduced, and we know what they will mean for all of us. Others are imperceptible – small, often minute, changes that over time fundamentally alter the way we carry out our jobs and the type of business we receive.
Mortgage advisers have had their fair share of both, particularly in the last decade or so. Anyone who considers the market to be similar to what it was back in 2009, probably wasn’t’ practising back then. Indeed, we could go as far to say that, the market isn’t what it was two years ago, let alone ten.
One area in which I think we’ve seen incremental development – particularly in the mainstream market, but also other sectors – is in the preponderance of longer-term, fixed-rate mortgages and, perhaps a brake with the past, an increase in advice for these and therefore an increase in take-up.
Now, of course, lenders have always offered longer-term fixes but, for a large number of reasons, the typical UK borrower (and indeed adviser) has never been too enamoured with them. Much can change within a five/10-year period, rates have tended to be significantly higher and therefore products much more expensive, long-term fixes tend to come with long-term ERCs which again make things costly for those who might need to change within such a term.
However, over the past couple of years in particular, there has been a move towards longer-term fixes, by which I predominantly mean five-year (but also now, 10-year) products. Just recently I saw data from Moneyfacts which suggests that the price differential between an average two-year and five-year mortgage is the lowest it has been in seven years, at just 0.36%.
That tends to move away one of the obstacles many have historically put up against not taking such a product – namely cost. Plus, you have to factor in the current political and economic situation. In a world which seems very uncertain, in an environment where we have no idea how Brexit might impact on the UK economy, and in households where we will still all need to pay our mortgages and every other outgoing, having a degree of certainty over a much longer period seems like sound advice to give and take.
If you really have no major plans for change in the next five to 10 years, and you might stomach the fact that – perhaps in the short-term – your mortgage will be a little more expensive, then today there are no shortage of longer-term fixed-rate product options to choose from. And it seems that, with every week, there are more coming to market.
Knowing exactly what your mortgage is going to cost you every month for the next 72 or 120 could be very appealing, especially when no-one is quite certain what will happen from the 31stOctober this year, and no-one appears to have any idea of what this will mean for the UK economy, jobs, house prices, interest rates, you name it, in the months and years that will follow.
Payment certainty is very attractive which is why we’ve seen a noticeable uptick in this type of mortgage business, and with this demand, we’ve seen more lenders entering the sector, and more competition equals price competition, which in turn makes a long-term fixed-rate product more attractive, etc, etc,
However, as has recently been pointed out, if that business which would normally by rights move from two-year to two-year to two-year, suddenly makes more sense for the borrower on five-year or 10-year deal, then advisers have an issue to contend with. Back in the day, this was rather derogatorily called ‘churn’ but it was just good advice if a better, more suitable product was available. It’s still good advice now but it may mean that it doesn’t come up for renewal in 2021 but 2024.
And that’s could clearly impact on transaction and income levels for individual advisers and firms. Which makes it a wise decision now to understand that this could happen, and what it will take from a business to ensure that income doesn’t drop. Perhaps the firm might believe it can bring in plenty of new business to make up any gap, but what about working the existing client book harder to ensure that all income potential is maximised, be that through the client’s protection or insurance or conveyancing needs?
We’re all aware of the anecdotal stats around the value of an existing customer compared to the cost of securing a new one. Wouldn’t it make more sense to up the service and product offering in other areas to ensure that, should it be right for that client to move onto a five or 10-year term, then any potential income lost by missing out on the two-year option, is more than made up for by covering their other financial services/products need?
For some firms this might involve a fundamental rethink about how they work their client book, but to my mind, it is the right approach, especially given that these clients are likely to be having these needs satisfied – just not by you. And if they are coming to you for their mortgage advice, why wouldn’t they be open to using you in other areas? The likelihood is high that they would, and it means that as the market does continue to change, you can ensure the quality of your service proposition doesn’t just stay the same, but it grows with both the market and your client’s needs.
Mark Snape is managing director of Broker Conveyancing