Fixed rate mortgages on the up

The Council of Mortgage Lenders (CML) has revealed that a number of first time buyers have opted for fixed rate loans, afraid of the rate rises that may come. The CML’s recent monthly survey showed that 85 per cent of first time buyers who took out a mortgage in January chose a fixed rate deal. This is the highest figure on record to date. Meanwhile, home movers also opted for fixed rate deals in large numbers, with more than 70 per cent of this group choosing fixed rate products.

The CML saw the take up of fixed rates by first time buyers as positive, as they were the most financially stretched group and the group most likely to be affected by interest rate rises. Making sure that payments are fixed will help avoid this. In January, fixed rate mortgages represented 72 per cent of new mortgage loans, which is the highest proportion since the previous January and is an increase over December’s 69 per cent figure.

Fixed rate mortgage loans are attractive compared to their variable rate counterparts, found the CML’s survey. The average fixed rate loan interest rate was 5.27 per cent in January, up from 5.23 per cent in December. In contrast the average discounted variable loan interest rate rose from 5.36 per cent in December to 5.54 per cent in January.

The number of loans for house purchase and remortgaging in January experienced a seasonal fall of 11 per cent from 182,300 in December to 162,300 in the period under review. However, that figure was still higher than the 153,600 loans issued in January 2006.

CML Director General Michael Coogan commented: ‘Increasing numbers of people – especially first-time buyers – are opting for a fixed-rate mortgage. Each month it seems that the prospect of another interest rate rise is balanced on a knife edge.  More and more borrowers are protecting themselves against this risk and choosing the certainty of fixing their monthly mortgage payments, which allows them to plan ahead with confidence.’