We spoke to Mark Eaton, Chief Operating Officer at April Mortgages, about longer-term fixed rates, launching a new lender in the UK, and the need for peace of mind
Why do you think the mortgage market needs longer-term fixed rates?
We’ve all seen first-hand the interest rate volatility of the last few years. Borrowers and their advisers have become accustomed to incredibly low interest rates, but after the mini-Budget we saw not just big increases, but rapid changes to rates too. There was a real sense of uncertainty - and in some cases panic - as borrowers and advisers tried to work out where they stood and whether they needed to move quickly to secure a rate today that wouldn’t be available tomorrow.
While that has settled down a little since then, there is still a lack of certainty; even modest swap rate movements have had a really noticeable impact on the pricing of new deals.
What we’re doing at April Mortgages is offering an alternative to the traditional and unwieldy model of borrowers constantly moving between short-term fixed rate deals, and being subjected to this rate volatility. We want to do things differently, so our customers can instead take advantage of a competitive rate offered over a term of between five and 15 years. That way they get much greater certainty and security than is usually on offer in this country.
Then, over time as their LTV drops as they make their repayments or the property gains in value, they will see that rate fall automatically as they move into a lower LTV band.
The longer-term fixed rate model is one that has a role in other countries, and it’s long past time that it was established as a viable alternative in the UK.
What has the experience of establishing a new lender been like?
It’s a really exciting challenge. The UK mortgage market has always been a competitive one, and that’s a good thing since it means we all have to keep finding ways to stand out and deliver for borrowers.
What I have found so encouraging about April Mortgages has been the response from advisers and borrowers. We are doing something different, delivering not just longer fixed rates than are the norm, but a pricing model that is different from traditional mortgage lenders too.
It won’t be for everyone - no financial product, let alone mortgage product could be - but there is no doubt in my mind that there is a significant portion of borrowers who really value the certainty that 5-15 year fixed rates provide.
It’s also been terrific to work so closely with Legal & General. Our products are currently available through the L&G Mortgage Club, initially just for members of the HL Partnership and Stonebridge networks, but we have got plans in place for extending that soon. As we increase our distribution, we’ll be able to work with even greater numbers of mortgage advisers and deliver peace of mind to advisers and their clients.
What do you mean when you talk about peace of mind?
In my view, the mortgage market has become really frenetic, for borrowers and advisers alike. We’ve got into this cycle of repeatedly signing up to a new two-year fixed rate, and it doesn’t really do much for the stress levels of anyone involved. It becomes a bit of a slog, while there is also the potential for really painful payment shocks which mean the borrower is unable to truly relax throughout the term of their deal.
As a lending industry, we don’t make it very easy for borrowers to get true peace of mind from knowing what they will be paying each month for the longer term - at best they might be able to secure a five-year period. I think that we can correct that, and deliver peace of mind for much longer terms.
It’s not just about the individual clients though; I think advisers will also benefit, and get some real peace of mind when they place someone with April Mortgages. It means they won’t be stuck on that same hamster wheel of remortgaging their various clients every couple of years, having to keep fighting lenders over ownership of the customer, while there is a commission structure in place which reflects the importance and value of their advice.
There’s also the question of regulation, and the pressures it brings with it. There is a clear expectation from the regulatory bodies to deliver a more rounded service, and demonstrate precisely why a product is right for the individual client. That pressure is eased if the client obviously values long-term certainty, and has the option of more lengthy fixed rate terms than has previously been available. Ultimately the adviser gets greater peace of mind from knowing they have done absolutely everything possible to meet their client’s particular requirements, and our products will help them do just that.
Peace of mind means different things to different people, but I’m convinced that there is a place for these products and the reception so far reinforces that impression.
How important are mortgage advisers to the April Mortgages model?
We are big believers in the value of financial advice, which is why our products are only available through regulated advisers. There’s a good reason that so much of the mortgage market goes through intermediaries - borrowers in the UK recognise that a mortgage is a big decision, and want to make use of the expert guidance advisers provide.
Our commission structure is designed to recognise the ongoing service provided by mortgage advisers, and if the customer comes to us for further advice, we will point them back to the adviser - we want to build long-term relationships with those giving the advice, as well as the borrowers themselves.
