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Borrowers missing out on low fixed rate mortgages

Borrowers missing out on low fixed rate mortgages

Category: Mortgages

Updated: 22/09/2011
First Published: 22/09/2011

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Homeowners who have got used to the record low base rate of interest are missing out on the lowest fixed rate mortgages in decades, new research has revealed.

With the Bank of England base rate remaining at 0.5% for a record 31 months in a row, figures from unbiased.co.uk found the continuation of the 'interest rate-spoilt' generation means homeowners may be missing out on attractive fixed rate deals.

The data revealed standard variable rate (SVR) mortgages are still the preferred option with 37% of homeowners, up from 35% in January 2011.

However, with fixed rates falling below 5% for the first time in decades and the threat of future interest rate rises becoming more real, the website said homeowners are potentially missing out on the best fixed rate deals.

At the same time, the research showed that borrowers' expectations of the mortgage rates currently available are also being skewed.

The rate at which homeowners would be prepared to fix at has now dropped to 'an unrealistic' 3.4%, the data showed, compared with 4% in January 2009.

Yet five year fixed rates have never been lower than 4.99% at any point in the past 24 years and the current average three year fixed rate is 4.35%.

Illustrating the current inertia of mortgage borrowers, almost half of homeowners (46%) have not reviewed their mortgage since base rate first dropped to 0.5% in March 2009.

Meanwhile, 16% said they believe the base rate is so low they do not need to worry about reviewing.

"Once rates begin to rise so will the price of fixed rate mortgages, meaning that now could well be the perfect time to review their mortgage finances and move to guard against the potential of increased payments in the future," said Karen Barrett, chief executive of unbiased.co.uk.

"The low base rate has also had a dramatic effect on homeowners' rate expectations with our research showing a stark contrast between what consumers would be willing to fix their mortgage to and the average rate available."

The warning comes after Moneyfacts.co.uk revealed the number of mortgage deals available to borrowers had reached its highest level for over three and a half years.

The data showed that prime residential borrowers currently have 3,035 mortgages from which to choose, the highest amount seen since February 2008.

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