“Even those prospective borrowers who think a fixed-rate mortgage is their only option may well benefit from the flexibility of a discounted mortgage.”
This means that taking out a fixed-rate mortgage makes a lot of sense for most common home purchases. This can also apply to landlords looking for greater payment security for their longer-term investments.
However, there are circumstances, particularly in niche and non-standard areas of the market such as home building, lending for later life, or buying for college, where a discounted mortgage product may prove more attractive and better serve your customers’ needs.
Discounted mortgages may offer a greater degree of flexibility to certain types of borrowers, such as B. those who are able to significantly overpay on occasion and/or who are able to pay off the mortgage in full with a lump sum somewhere along the line. And all this without having to reckon with fines.
For those borrowers with a discounted offer who are building their own home, this could be a financially smart proposition, as projects may be completed sooner than expected. Circumstances can also change quickly when it comes to lending later in life, and when buying for study there is always a risk that the offspring will drop out of their studies.
Many discounted mortgages also typically have lower processing fees, and some lenders charge no fees at all, meaning further upfront savings. And since rebates are tied to SVRs and not the base rate, any movement to the SVR is governed by each individual lender, so an increase in the base rate does not necessarily mean an increase in the SVR, as seen in the current interest rate climate, where some lenders have opted to freeze the SVR for their products, despite consecutive rate hikes since December 2021.
For applicants with two to three times the income, who may have more cash on hand and are able to handle fluctuations in the amount repaid, the savings offered by discounted rates may also be more appropriate than paying a premium for a fixed rate.
For example, one lender may offer a fixed rate of 2.89% over two years with a fee of £1,390.00, while another lender may offer a discounted rate of 1.75% with a fee of £1,269.00. In this situation, the large savings differential of over 1% may be more attractive and may prove cheaper overall, particularly if the customer does not believe interest rates will rise enough to justify paying a fixed premium.
Obviously, discounted mortgages won’t be the best fit for every lending scenario, and I’m certainly not saying that a fixed rate won’t prove to be the best option for most borrowers in the current economic climate. It is important to remember that every client’s needs and circumstances are different.
Weighing the pros and cons of each product type remains critical to determining if a discounted mortgage could potentially be an option for your client. Even those prospective borrowers who think a fixed rate mortgage is their only option may well benefit from the flexibility of a discounted mortgage. Good advice is always about exploring every angle and presenting the information to clients in a clear and concise manner to ensure an informed decision can be made. Even under such uncertain economic conditions, it is advisable not to discount the discount entirely.