Brokers guiding home loan seekers towards fixed-rate terms lasting two years, allegedly for personal financial gain, as asserted by a whistleblower.
Mortgage brokers are under scrutiny as a whistleblower working for a major lender has claimed that some brokers are steering borrowers towards two-year fixed rates to collect more commission.
According to the whistleblower, recommending two-year deals to most clients would be unwise. Instead, commission should be paid as an annual sum, based on whether the loan is still with the lender. This approach, the whistleblower believes, would align the interests of brokers with those of their clients.
The FCA states that mortgage brokers must consider the needs and circumstances of their customers and recommend products which meet these. They also require brokers to offer customers clear information and products which are right for them under the new Consumer Duty rules.
The majority of mortgage brokers are acting in good faith, according to Aaron Strutt of broker Trinity Financial. He believes that many borrowers are focused on finding the cheapest rates because of repayment shocks. Nicholas Mendes of mortgage broker John Charcol agrees, stating that low rates are the key driver of the rise in two-year fixes, not commission incentives.
New data reveals that borrowers are moving away from long term fixed mortgages. Searches for two year fixed rates by mortgage brokers have risen from 41% in January to 53% in August, according to new data from Twenty7tec. On the other hand, those looking for longer than five year fixes - typically 10 years - account for just 12% of searches, down from 23% at the start of the year.
Two-year fixes are cheaper than five-year deals, which is a shift that has not been common for some time. The FCA wrote to chief executives in January this year asking mortgage brokers to do more to ensure customers have considered their options.
In terms of actual recommendations sent by brokers to customers - a document known as an European Standardised Information Sheet (ESIS), 50% of these have been two-year fixes in 2025 compared to 45% for five-year fixes.
Mortgage brokers are paid commission by the lender each time they arrange a new mortgage, which is typically between 0.35 and 0.4% of the total mortgage value. For selling two- and five-year contracts, brokers typically receive a commission ranging between 0.5% and 2.75% of the loan amount. However, the exact rate depends on agreements with lenders and can vary within this range.
Fixing a customer for two years means they might return in two years, allowing a broker to get another round of commission, rather than waiting for five years. Borrowers are looking to benefit from reviewing their product sooner, rather than being tied into a five-year deal, according to Mendes.
The FCA has not yet released a statement regarding the whistleblower's claims. However, they have previously emphasised the importance of mortgage brokers acting in the best interests of their clients. The FCA also encourages borrowers to shop around for the best deal and to consider their long-term financial goals when choosing a mortgage product.
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