The Nationwide has warned homeowners to be cautious of mortgage broker’s advice to sign up to a fixed-rate deal.
Chris Rhodes, Nationwide’s product and marketing director, said that brokers who have suffered from the slump in mortgage lending over the past year have an incentive to encourage consumers to fix. Brokers earn a commission when they sign clients up to a new mortgage deal and receive a higher fee for fixed-rate products.
Thousands of mortgage holders have allowed their fixed deals to expire to take advantage of lender’s standard variable rates (SVR) which have been kept low by the Bank of England’s decision to keep the base rate at 0.5%.
Some analysts have been urging homeowners to switch to a fixed-rate deal as higher than expected inflation has made an increase in the base rate more likely.
Mr Rhodes suggested that some brokers may be churning mortgages to earn fees. Churning is where a broker will contact a customer they have previously arranged a mortgage for to sell them another product. A broker might recommend that a customer switches to a fixed-rate deal having previously sold them a standard rate product irrespective of whether this is in their best interests,
Mr Rhodes said: “No one knows where rates are going to go. It has to be down to your judgement what you decide to do. That is not to say that you don’t fix. If you are on a standard variable rate of 2.5% and you are offered a two-year fix at 4.5%, you have to comfortable paying that extra two percentage points as insurance.
“You may feel that you can afford to take the hit if rates rise – even if they rise by as much as 1.5 points, for instance. If the market was confident that the Bank of England had come to a point when the economy had stabilised and Bank Rate didn’t need to keep rising, then swap rates may fall again – and so would fixed rates.”
Swap rates, the rates at which banks borrow money on the market to fund their lending, have risen over recent weeks on the back of speculation about a possible increase in the base rate. This has fed through to the pricing of fixed-rate deals with some lenders withdrawing their cheaper products from the market.
However, Melanie Bien, of mortgage broker Private Finance, said: “Borrowers considering switching to a fixed rate should do so as soon as possible as there is every likelihood that fixed rates will rise further in the coming days. But those who are on a cheap variable rate, and who could cope with a few quarter-point rises in Bank Rate, may consider staying put for now”.
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