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Uncertainty fuels fixed rate mortgage revival

Uncertainty fuels fixed rate mortgage revival

Category: Mortgages

Updated: 17/06/2010
First Published: 17/06/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
More home buyers took out a fixed rate mortgage in May than have done since October last year.

More than a quarter (26%) of borrowers opted for a fixed rate deal last month, a seven month high, as uncertainty in the economy was magnified by political instability, according to John Charcol.

The movement towards fixed rates has also been boosted by a narrowing of the gap of average rates charged on fixed rate mortgages and variable rate mortgages.

Whereas the average rate of a fixed deal was some 2.5% more than a variable in March, this margin had closed to just below 1.5%.

With a change in base rate possibly not too far off, the tightening of average rates has been enough to convince some homebuyers to fix their rate, rather than rely on interest rates staying at their record historic low.

"Knowing what the future for interest rates looks like is an exercise in crystal ball gazing, but the reality is that there is only one way interest rates can now move - it's just when and by how much," said Drew Wetherspoon, director of marketing at John Charcol.

"Some borrowers are undoubtedly still adopting a wait and see approach, but the narrowing in the price differential between fixed and variable rates over the last few months has led some to act now."

Despite a report earlier this week claiming that conditions in the mortgage market are ripe for first time buyers, numbers continue to disappoint, with an 18 month low of 6% of all buyers being first timers in May.

These figures may have worsened if rumours had been true that the Chancellor, George Osborne, was to announce a 75% loan-to-value cap on mortgage at his Mansion House speech in London last night.

However, Mr. Osborne did not reveal such a measure, although he still has next week's emergency Budget in which to unveil new initiatives.

Amongst the best two year fixed rate mortgages currently on offer are a deal from The Co-operative Bank at a rate of 2.95% for borrowers with a 25% deposit, and a deal from HSBC at 2.99%, requiring a 30% deposit.

For borrowers looking for a variable rate mortgage deal for term, a rate of 2.29% is available from first direct which requires a 35% deposit, while ING Direct offers a deal at 2.84% needing a 25% deposit.

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