Fixed-rate mortgage popularity on the wane

Just over a third of borrowers chose a fixed rate in September, the smallest proportion this year, and there is no sign of the trend changing in October.

Ray Boulger, senior technical manager of John Charcol, said: “Most fixed rates still look too expensive. However, the best fixed and variable rates have got cheaper this month, with some real competition now emerging in some sectors of the market.  Northern Rock recently launched a 4.99% five-year fix up to 70% LTV with a relatively low fee of £595 for purchases (£995 for remortgages, but with a free valuation and free legals) and this new aggressive stance is helping drive some value back to the fixed-rate market.  

“Nothing has happened over the last few weeks to change our view that interest rates will remain low well into 2011 and last week’s weak GDP figures, showing that we are now in the longest recession since records began, supports this view.  Consequently we have continued to advise the majority of our clients to take a variable-rate mortgage, as the differential between fixed and variable-rate pricing still means that fixed rates are discounting a quicker and larger rise in interest rates than looks likely.”

“The proportion of purchases increased marginally last month, to 57.8%, a record percentage for the year. First-time buyer activity as a percentage of total purchases remained subdued in the low double digits at 10.4%, with many potential buyers still either struggling to find a deposit or failing to meet lenders’ onerous credit score requirements for high LTV mortgages.”