With 1.8 million fixed rate mortgages due to end this year, borrowers are turning to short-term rates as uncertainty looms.
According to Rightmove UK, the current average rates for two- and five-year fixes are 5.01% and 5% respectively.
According to some lenders and advisers, borrowers are currently looking to temporary fixes as they seek longer-term solutions to placate the incoming price shocks.
Borrowers need time to consider suitability
Behaviour among borrowers coming off their fixed rates has some variation.
Borrowers are split between staying on their lender’s standard variable rate (SVR) versus turning to shorter-term rates, with some combining the two.
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Tony Hall, head of business development at Saffron for Intermediaries, said: “Increasingly, SVR is being used as a short-term stopgap while borrowers seek advice and secure a more suitable product.”
He added: “A degree of caution remains in the market, with some borrowers delaying decisions in the hope that rates may improve further.
“However, affordability pressures and the need for payment certainty mean many are unwilling or unable to wait indefinitely. As a result, we are seeing continued demand for products that offer flexibility and the opportunity to review options again in the near future.”
Sam Lindsay, founder of My Mortgage Angel, said: “We’re seeing a slightly shorter-term view for some clients. It’s making them consider if this property is right for me for the next five years.”
Advisers taking proactive measures
Advisers are well-equipped to have these conversations with their clients. Brokers are engaging with clients soon before their rates are coming to an end.
Rachel Geddes, strategic lender relationship director at Mortgage Advice Bureau (MAB), said: “Some borrowers have delayed taking action, only to find rates increased before they secured a new deal. However, this has encouraged many to engage with an adviser much earlier in the process. Starting those conversations sooner gives borrowers more time to consider their options.”
Lindsay advised that those coming off fixed rates should avoid panic. With conversations happening six months before her clients come off their rates, she gives them ample time to navigate what products are available to them.
Hall added: “Advisers are playing a critical role in helping borrowers navigate an uncertain market. Conversations are increasingly focused on affordability, product suitability and future plans, rather than simply securing the lowest rate.”
Borrowers battling immediate certainty or speculation
For some borrowers, there is a delay in the decision-making process. Geddes commented: “We’re seeing some borrowers delay making a decision because they expect rates to fall. While that’s understandable, trying to time the market can be risky. If rates move in the opposite direction, borrowers could miss out on a better deal.”
Rajul Dhokia, head of mortgages at Mantra – part of BTG – highlighted that borrowers are well-informed about the impending increase in their mortgage rates.
He added that there has been an uptake of trackers with no ties, noting: “If they think that rates may reduce, they’re happy to take the risk of a base rate increase, and they can afford it, they’re being a bit speculative and sitting on a tracker with no ties.”
Lindsay commented: “We’re also seeing some people wanting to take tracker rates. But with increased instability in [the] global economy, they don’t always work.”
As lenders broaden their tracker range, and with the Bank of England’s decision to hold the base rate, market volatility still sweeps demand.
With base rates being held by the Bank of England, expectations are that this will continue.
Other borrowers are looking to secure certainty in the immediate term, pushing shopping for mortgage rates later down the line.
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said: “Borrowers coming to the end of a fixed rate deal are often looking for certainty around their future repayments, rather than trying to predict exactly where rates might move next.
“Many are exploring their options well before their current deal ends, particularly as lenders increasingly allow customers to secure a new rate several months in advance.”
Likewise, Hall said: “The volatility seen in recent years has encouraged people to plan further ahead and secure options earlier, giving them greater certainty and reducing the risk of being caught out by market movements.”
Engagement with advisers early is paramount. This prevents borrowers from turning to SVRs, as in the meantime, plenty of options exist for them.
