Lower levels of interest in fixed rate deals
August 5, 2007
Many consumers in the UK have been interested in fixed rate mortgages over the past year, as many were worries about the prospect of interest rate rises and the effect that they would have on their repayments with a variable rate mortgage.
Following the first two or three interest rate rises the number of people looking into fixed rate mortgages rose, with analysts predicting further interest rate rises to come. There have now been five interest rate rises in the space of a year, taking the rate from 4.5% last August to 5.75% this month.
According to recent figures, along with the latest interest rate rise has come a drop in the amount of interest in fixed rate mortgages. As a result of the interest rate rises fixed rate deals are now fixed at a far higher rate than previously, and many consumers feel that interest rates are unlikely to go much higher and therefore it is not worth tying themselves in to a high rate at this stage when it could work against them if rate stabilize or start to come down.
According to one industry professional: ‘With the market having fully factored in not only this rise, but also another one to 6%, Swap rates are now at their highest since 2000 and most fixed rates look expensive compared to discounts and trackers, unless bank rate goes beyond 6%. While fixed rates have always been popular due to the security they provide, we are now seeing a fall in the proportion of borrowers choosing a fixed rate as borrowers decide that rates are close to their peak, thus reducing the value of paying a premium rate for interest rate protection. ’
He also stated: ‘Currently, the best two-year tracker mortgages are around 0.35% cheaper than the best two-year fixed rates, even after the effect of the latest rise. Thus a fixed-rate mortgage will only be cheaper if bank rate rises rapidly to at least 6.25% and stays there, or goes higher, for some time.’
Alan Wright
5th August 2007
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