We're seeing anecdotal evidence on social media of advisers seeing clients who jumped at the chance to lock in 5% or 6% rates amid the rate rise chaos of the last few months - including many who paid money to exit low rate deals early.
Contacted a client we arranged a 1.84% 5-year fixed for, which ends 2nd Nov. They panicked amongst the headlines in October last year, paid a £10k exit charge and fixed in at 6% for 7 years. Of course, Santander were more than happy to help him with that...
— James Carter (@indejames) April 25, 2023
We asked brokers whether they have seen this happen and what their predictions are for rates in the near future.
Rhys Schofield, managing director at Peak Mortgages and Protection: "The whole industry seemed to go into blind panic mode last year, driven by doom-mongering headlines. Too many people rushed into long-term fixes and will now be paying what looks like over the odds for years to come seeing as rates have already come down from their highs. Many of those customers panicked and payed sometimes thousands in early repayment charges for the privilege. It just shows why good quality advice is so important. Fortunately we advised many customers to look at other options which were right for them such as variable or tracker rates with no tie-ins whilst the market settled and are now looking at new fixed rate solutions for many of them as sanity returned. My fear is that too many banks and brokers simply rushed into facilitating a knee-jerk reaction for customers feeling vulnerable."
Samuel Mather-Holgate, IFA at Mather and Murray Financial: "The media hysteria around mortgage rate rises and the cost of living crisis failed to put the time horizon into perspective. It was going to be a really difficult time for families and homeowners, but inflation is only measured over 12 months and the tools used to reduce it will have to be withdrawn when it returns to target. That means rates coming back down, probably to around 2% by the end of the year, fighting off the next crisis- the possibility of deflation, and that would be much worse."
Paul Neal, director of mortgages and equity release at Missing Element Mortgage Services: "Long-term fixed rates are great if you know what you are doing in the next 10 years, however, they do run the risk of high ERCs and also put you at the risk of losing out on drops in rates. Two years ago a fixed rate of 1.8% fixed for 10 years was a fantastic deal, in my opinion, 10 years fixed at 5% not so."
Matthew Jackson, director at Mint FS: "Advice is invaluable in a changing market - personally I have spoken to numerous new clients in the last month or so that jumped to lock in a new long term rate in the height of the chaos post mini budget without advice and are now regretting it.
"Unfortunately the majority of these products have hefty penalties to exit and this will be a costly lesson for them. However it does illustrate the need for everyone to be concious of the messages delivered by some news outlets and the panic this can induce in the public!"
Gareth Davies, director at South Coast Mortgage Services: "To say the nation went into panic mode in late September/early October 2022 is an understatement.
"Our phones were off the hook with calls, emails, texts etc, all panicking about the fallout of the disastrous mini-budget. We had people calling us with another two years to run on a sub 2% fixed rate, wanting to redeem it early in order to secure a deal at 5%/6% because they were worried things would be worse in two years time.
"Fortunately, we took the stance that the sharp increase in rates was more of a knee-jerk reaction by lenders as opposed to a long-term strategy, and advised any client we spoke to not to rush into a new deal and to let the dust settle. We did see someone go against our advice and they paid substantial fees to refinance early onto a deal that was, in our eyes, very significant in cost. Had they sat tight as we'd advised, they would have saved thousands of pounds in penalty fees and future interest as the products reduced very soon after they committed to a new one."
Emma Jones, managing director at Whenthebanksaysno.co.uk: "We hope that those paying exit fees did not have a few years left on their mortgage deal as that would of been considered as 'bad advice'. For those that secured as early as six months, they have still been able to take advantage of a lower rate once they become available again, provided this was before completion. Unfortunately we don't have any examples where clients paid large exit fees with time still on their deal. Most of our advice was to wait it out if they had considerable time left on their current deals which for most of our clients was sub-2%!"
