Fixed rate mortgages are so commonplace now that it's hard to imagine a time when they weren't around. But, there was – and it wasn't that long ago either. In fact, this year marks the 25th anniversary of their launch, and Moneyfacts has taken a look at how far the humble fixed rate mortgage, and the market as a whole, has come.
In 1989, the year they first came into being, the average house price (according to the Office for National Statistics) stood at £55,000, a sum that seems almost laughable today, with the typical price having leapt to £260,000. Retail Price Index (RPI) meanwhile, the only inflationary measurement of the day, was 8.3% compared to 3.3% now.
And, even more shocking, is the Bank of England base rate. In 1989 it stood at 14%, a far cry from the record low of 0.5% today. Even though there's much speculation of it increasing in the not-too-distant future, it's hard to imagine that we'll ever get back to that – and the Governor himself has even said that it'll more likely normalise at around the 5% mark over the next few years, a long way from such heady rates of years gone by.
But what did that mean for mortgage rates? Well, in June 1989 the best fixed rate mortgage was a three-year deal priced at a whopping 12.40% from National Westminster Bank, but you could pay as much as 12.99% if you took out a similar mortgage from National Home Loans Corp.
It's a scary thought, particularly compared to today's figures, with there already being widespread concern about mortgage rates being on the rise. Nonetheless, it's hard to envisage a return to such high rates, and with banks stress testing applicants to around the 7% mark hopefully it isn't something we'll need to experience too soon.
For the time being, however, fixed mortgage rates are still at historically low levels and the product continues to be the mortgage of choice for a majority of customers and providers alike, with product numbers in this sector far outweighing any others on the market.
Sylvia Waycot, editor at Moneyfacts.co.uk, commented:
"If you wanted a fixed rate mortgage from your bank or building society in July 1989 you had a choice of just seven products, mainly three-year deals. At the time early redemption charges could be quite high which made some borrowers wary of longer tie-ins.
"Fast-forward to today, however, and there are 2,181 fixed rate mortgages to choose from, easily outnumbering the 769 variable and trackers by almost three to one. Two-year fixed is the area where the lowest rates reside, and the cheapest available comes from West Brom BS at 1.58%."
So, even though rates are starting to increase, there are still some great deals to be found – particularly if you have a decent deposit to get the ball rolling. Ongoing speculation over changes to base rate will likely mean the fixed mortgage remains the product of choice for the foreseeable future, giving borrowers security over their repayments, but making sure you get the best deal – and the best term for your needs – is still vital, and of course, it'll all come down to your circumstances.
"As we enter a time of uncertainty with regard to rate rises, stress tests to assess affordability and Bank of England loan-to-income multiples, fixed rate mortgages are likely to become the white knight of the mortgage industry," added Ms Waycot. "However, the questions of 'how long' and 'when should I fix' are unlikely to go away."
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