Variable rate mortgages still proving popular - Mortgages - News - Moneyfacts


Variable rate mortgages still proving popular

Variable rate mortgages still proving popular

Category: Mortgages

Updated: 29/10/2009
First Published: 29/10/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
The popularity of fixed rate mortgages continues to decline, with variable rate mortgages now taking almost two thirds of the market, new research has revealed.

Just over a third of borrowers chose a fixed rate in September, the smallest proportion seen this year, while the suggestion is that the trend is set to continue in October, according to John Charcol.

Ray Boulger from the independent mortgage adviser said that most fixed rates still looked too expensive, although the best fixed and variable rates had got cheaper over the month, with real competition emerging in some sectors of the market.

"Yesterday saw Northern Rock launch a 4.99% five year fix up to 70% LTV with a relatively low fee of £595 for purchases and this new aggressive stance is helping drive some value back to the fixed rate market," he commented.

"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."

Meanwhile, the proportion of mortgages issued for house purchase increased slightly over the month to 57.8%, a record for the year. However, first time buyer activity as a percentage of total purchases remained subdued at 10.4%, with many potential entrants to the market still either struggling to find a deposit or failing to meet lenders' onerous credit score requirements for high LTV mortgages.

"If first time buyers had anticipated having to save for a deposit, no doubt many would have cut back on discretionary spending and started saving earlier, but with 100% mortgages being readily available to those with good credit until early last year, the need to save was not such an obvious necessity until then, even though it was always the sensible thing to do," Boulger added.

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