Despite advice not to fix mortgage rates, borrowers are flocking to lock their rates in a race to beat interest rate rises.
In February, 57% of all mortgages advanced were at a fixed rate, up from 52% in
January, according to the latest figures from the Council of Mortgage Lenders.
With uncertainty surrounding the timing of future interest rate rises there has
been a gradual shift back to fixed-rate products from the low of 45% in May
2010.
However, locking in to a fix may be premature – with the inflation unexpectedly
easing and taking the pressure of the Bank of England to notch up bank base
rates from 0.5%, where they have stuck for two years.
Brokers Jon Charcol and other industry professionals suggest that fixing at 3.5%
or more long for two years may leave many borrowers paying more than the
going rate for a mortgage.
Even Bank of England monetary policy committee hawk Andrew Sentence has
suggested interest rates may only hit 2% by the end of the year or so – leaving
someone on the average fix of 4.44% stranded paying more than a borrower on
the current standard variable rate average of 3.26%.
Mortgage borrowers should also factor in the cost of arrangement and booking
fees in to the equation to make sure that fixed rate deal really is value for money.
Nevertheless, the latest National Mortgage Index compiled by Mortgage Advice
Bureau and Coreco Group shows that 80% of all applications for new mortgages
in March were for fixed rate packages – following the trend of 79% in February.
The majority of homeowners (73%) remortgaging in March opted for a fix as
well.
“Following a slight rise in the cost of the average two and five year fixed rates
during March, pricing has fallen back marginally this month, although conversely
average two year tracker rates have ticked back up a little,” said Brian Murphy,
the Mortgage Advice Bureau’s head of lending.
“Importantly, average rates for two year trackers and two and five year fixed
rates are below the corresponding average rates that were being offered 12
months ago, further demonstrating that mortgage product pricing continues to
offer good value relative to historic levels.”
