Increasing numbers of home buyers are opting for fixed rate mortgages
A rise in standard variable rates from a number of lenders has led to an increase in the popularity of fixed rate mortgages with home buyers in the UK, it is claimed.
Just Mortgages, which is part of independent estate agency group Spicerhaart, has seen the number of fixed rate mortgages that they have arranged increase to the highest level all year.
Figures from the broker show a spike in one and two year fixed term applications processed in the last three months driven in part by several lenders increasing their standard variable rate together with a move from buy to let investors towards short term, special offer fixed term deals.
‘The recent rises in the standard variable rate from a number of lenders has seen a surge in prospective house buyers opting for fixed term mortgages that protect their payments against any rate increases over the short term. The number choosing medium term three to five year fixed term deals are also on the rise, albeit not at the same level,’ said David Miles, director of Just Mortgages.
‘We expect this trend to continue as some lenders are starting to pass on the benefits of their participation in the Funding for Lending Scheme (FLS) to customers in the form of exciting new rates, and the Bank of England’s base rate is likely to only go in one direction, although expert opinion is divided as to when this could be,’ he explained.
Independent mortgage adviser John Charcol has also seen the popularity of fixed rate mortgages increase.
‘The proportion of John Charcol clients choosing a fixed rate increased further in October to 69%, with 5% choosing a three year fix and the other 64% split almost equally between two and five year fixes. The steady steam of rate cuts gathered pace over the month, mostly on fixed rate mortgages,’ said spokesman Ray Boulger.
‘Despite the success of FLS, the major benefits in terms of increased lending will come through in 2013 and I expect gross mortgage lending to increase to around £155 billion next year,’ he added.
He explained that with the outlook for interest rates continuing to be benign for several years, at first sight there seems little merit in buying a two year fixed rate mortgage as it only provides interest rate protection for a period when it is very unlikely to be required.
‘However, many two year fixed rate mortgages are now cheaper than tracker or discount rates and hence for those borrowers who don’t want to be locked into ERCs for too long a two year fixed rate can be a good choice,’ he pointed out.
‘It can also be a good strategy for borrowers needing a high LTV providing they choose a lender with one of the cheaper SVRs to revert to, as most lenders revert their borrowers to the same rate regardless of LTV,’ he added.
Sub 3% five year fixed rate mortgages are now offered by several lenders up to 60% LTV but competition is also hotting up at higher LTVs. The widely held perception that FLS is only helping those with a 40% deposit is no longer supported by the facts.
According to the firm the best five year fixed rates at higher LTVs are 75%, 3.29% with a £995 fee from Accord; 80%:, 3.79% with a £999 fee from Metro Bank; 85%, 4.49% with a £999 fee from Nationwide; and 90%, 4.79% with a nil fee from Royal Bank of Scotland / NatWest for first time buyers only.