Don’t totally discount the discount

Which means that, for the majority of standard residential property purchases, locking in a fixed rate mortgage makes plenty of sense. This may also apply to landlords who are looking for greater payment security around their longer-term investments.

However, there are circumstances, especially in more niche and non-standard areas of the market such as self-build, later life lending or buying for university, where a discounted mortgage product may prove more attractive and better suited to your clients’ needs.

Discounted mortgages can offer greater levels of flexibility for certain borrower types such as those who may find themselves in a position to substantially overpay on occasion and/or who are able to pay off the mortgage in full via one lump sum somewhere along the line. All without facing any financial penalties.

For those borrowers on a discounted deal and building their own home, this could be a financially astute proposition as projects may finish earlier than expected. Circumstances can quickly change when it comes to later life lending too and if buying for university there is always the risk that offspring may drop out of their studies.

Many discounted mortgages also tend to have lower arrangements fees, and some lenders do not charge any fees at all, which means further upfront savings. And, as discounts are tied to SVRs and not the base rate, any movement to the SVR is governed by each individual lender so a base rate increase does not necessarily mean a hike to the SVR, as seen in the current interest rate climate where some lenders have chosen to freeze the SVR on their products despite consecutive base rate hikes since December 2021.

For applicants borrowing two to three times income who may have more disposable cash and are able to manage any fluctuations in repayment amount, the savings offered by discounted rates may also be more suitable than paying a premium for a fixed rate.

For example, a lender may be offering a fixed rate at 2.89% over two years with a £1,390.00 fee, while another lender may be offering a discounted rate of 1.75% with a fee of £1,269.00. In this situation, the large differential of over 1% in savings may be more attractive and prove cheaper overall, particularly if the client does not believe rates will increase enough to warrant paying a fixed rate premium.

Obviously, discounted mortgages will not represent the best fit for every lending scenario and I’m certainly not saying that a fixed rate will not prove to be the best option for most borrowers in the current economic climate. What’s important to remember is that the needs and circumstances of every client are different.

Weighing up the pros and cons of each product type remains crucial in determining whether a discounted mortgage could potentially be an option for your client. Even those potential borrowers who come in thinking that 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, concise manner to ensure that an informed decision can be made. In doing so, even in such uncertain economic conditions, it’s prudent not to totally discount the discount.