Brokers guiding home loan applicants towards two-year fixed rates to boost their personal profits, alleges whistleblower.
In the realm of home loans, a notable trend has emerged as more and more borrowers opt for two-year fixed-rate rocket mortgage loans. This shift, according to industry experts, is primarily driven by the current low-mortgage rates environment.
Mortgage rates have been steadily decreasing over the past two years, a fact that Nicholas Mendes of mortgage broker John Charcol attests to. He states that the allure of two-year fixes lies in their flexibility, allowing for product reviews sooner and potentially avoiding early repayment charges.
However, this trend has raised some concerns. A whistleblower working for a major mortgage lender claims that some mortgage brokers are steering borrowers towards two-year fixed rates to collect more commission. This allegation, if proven true, could potentially undermine the trust between borrowers and brokers.
Aaron Strutt of broker Trinity Financial, however, asserts that the majority of mortgage brokers are acting in good faith. He believes that many borrowers are focusing on the cheapest current mortgage rates due to repayment shocks.
The Financial Conduct Authority (FCA) has weighed in on the matter, writing to chief executives in January, asking mortgage brokers to ensure customers have considered their options thoroughly. The FCA also states that mortgage brokers must consider the needs and circumstances of their customers and recommend products that meet these needs.
The FCA's new Consumer Duty further requires brokers to offer customers clear information and products that are right for them. This duty aims to ensure that customers are well-informed and that their best interests are prioritised.
Searches for two-year fixed rates by mortgage brokers have seen a significant increase, rising from 41% in January to 53% in August, according to new data from Twenty7tec. This trend is reflected in the recommendations sent by brokers to customers, with 50% of these being two-year fixes in 2025 compared to 45% for five-year fixes.
Despite the surge in two-year fixes, the demand for longer-term fixed mortgages, such as ten-year deals, has dropped significantly. Those looking for longer than five-year fixes account for just 12% of searches, down from 23% at the start of the year.
The future of mortgage rates remains uncertain. While they have been moving downwards, whether they will continue to do so is unclear. Andrew Bailey, the Bank of England Governor, has expressed doubt about further interest rate cuts.
In terms of commission, mortgage brokers typically receive a commission ranging from 0.5% to 1.5% of the loan amount for issuing two-year fixed-rate rocket mortgage loans. Additionally, many brokers also charge their own fees to customers, which are often between £500 and £1,000 each time they arrange their mortgage.
The whistleblower believes the FCA needs to introduce rules that stop lenders paying commission to brokers in the form of an upfront lump sum, and that commission should be paid as an annual sum, based on whether the loan is still with the lender. This, they argue, would discourage brokers from recommending short-term fixes to collect more commission.
The whistleblower also thinks a broker recommending two-year deals to most of their clients would be unwise, as it could be better to lock in for five years to avoid remortgaging more expensively in two years if mortgage rates rise.
As the mortgage market continues to evolve, it is crucial for both borrowers and brokers to maintain a high level of transparency and ethical conduct. The FCA's role in regulating the industry will be crucial in ensuring that the needs of borrowers are met and that the market remains fair and sustainable.
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