BestAdvice fires the questions at Mark Eaton, chief operating officer, April Mortgages.
BestAdvice (BA): You recently increased the loan-to-income caps at April Mortgages. What drove that decision?
Mark Eaton (ME): That’s right, we will now lend at up to six times income, on both a sole and joint basis, to borrowers whether they are looking to purchase or remortgage on a like-for-like basis.
It’s an important move for supporting more borrowers given the way that house prices continue to grow. This persistent growth can make it far more challenging for borrowers to raise the sums they need, and so we have moved to increase the LTI so that we are able to bring peace of mind to a much greater range of borrowers.
Obviously, it’s important to go about this in a responsible manner – there’s no benefit in providing mortgages that aren’t going to be affordable to the client – but higher LTI caps mean we can offer larger mortgages to those who can meet their repayments for the long term.
It’s a great example of how we are changing the mortgage market for the better.
BA: Why do you think the mortgage market in this country needs longer-term fixed rate products?
ME: There are some enormous benefits for borrowers from truly longer-term fixed rate mortgages.
Protection from rate volatility is clearly a big selling point – borrowers on a fixed rate of up to 15 years don’t feel the strain and stress from the sudden rate changes which have been so commonplace over the last couple of years. Instead, a competitive rate is secured for the long term, and as borrowers know their rate will reduce automatically through the LTV bands as rates reduce, they get the benefits of certainty and flexibility.
That certainty can help them build a better financial position too. They know what they are going to be paying each month on their mortgage, which makes budgeting much easier and can help them build more financial resilience.
Genuinely longer-term fixed rates, that allow borrowers to secure a rate for up to 15 years, are a common feature of mortgage markets in other countries but they haven’t been properly offered in the UK until now. April Mortgages is committed to changing that and spreading some real peace of mind.
BA: But how do advisers benefit from this?
ME: I think it’s easy to overlook the fact that these longer-term products bring greater peace of mind to advisers, as well as their clients.
Advisers won’t need me to point out that the last couple of years have been absolutely brutal when it comes to rate changes. It’s not just the size of the rate changes, but the speed with which rates have changed – there’ve been no shortage of occasions when lenders pulled products or hiked the rates with little to no notice.
If your client is about to remortgage to their latest two-year fixed rate, then this volatility is an absolute nightmare and will likely cause a lot of stress and sleepless nights, for both you and the client. But even clients who aren’t approaching the end of their term get caught up in the panic and start phoning you, asking if they need to remortgage ahead of schedule, so they don’t get caught out paying more.
It’s an absolute rollercoaster, and when you have multiple clients going through it, it can be completely overwhelming.
Genuinely longer-term fixed rates remove that pressure – the mortgage adviser secures certainty for their client, helps them get off the two-year remortgage treadmill, and enjoys a competitive ongoing commission structure.
It also sidesteps that tug of war that brokers often face with lenders over the ownership of the client – we ensure that if the borrower comes to us with further borrowing needs, they are directed straight back to the initial adviser.
This isn’t a gimmick – we are truly passionate about bringing true peace of mind to the mortgage market, and that has to include advisers as well as borrowers.
BA: Won’t longer-term fixed rates hold back borrowers from moving home?
ME: This has long been put forward as one of the potential downsides to fixed rate terms of more than five years, but we have designed our products to ensure that borrowers will not feel constrained by their mortgage deal.
If the borrower repays the mortgage using the funds from selling the property, then there are no early repayment charges (ERCs). Similarly, there are no ERCs if they repay using their own funds,
We are serious about providing borrowers with real peace of mind, so we don’t want them to feel trapped by their mortgage. Instead they benefit from security over the rate, but with the knowledge that if their circumstances change and they need to move home, they won’t be punished for doing so.
