Borrowers shrug of interest rate fears as more opt for tracker mortgages

17th October 2014


Homebuyers have shrugged off concerns about impending interest rate rises as the number applying for a fixed-rate mortgage fell to its lowest level in almost two years.

Figures from the Mortgage Advice Bureau (MAB) showed despite the first rate being expected next year, 8% of applicants applying for a mortgage last month did not opt for a fixed rate-deal. This represents a 2% increase on September 2013 and the lowest proportion seen since November 2012 when 90% chose to fix.

Among those remortgaging an existing property, 89% chose a fixed rate deal compared to 92% a year ago.

The decline in popularity of fixed-rate mortgages comes as lenders slash the cost of tracker mortgages in a price war. According to comparison site, two-year fixed mortgage rates have risen steadily to reach their highest rate in sixteen months of 3.78%, compared to two-year tracker rates which reached their lowest level of 2.63% in September.

September was also the first time since May 2008 that three year fixed mortgages were cheaper than two year fixed mortgages. Five year fixed-rate deal have been above 4% for seven months in a row, and at 4.16% are considerably more expensive than shorter term deals.

Brian Murphy, head of lending at MAB, said: ‘The question of interest rate rises is not an ‘if’ but a ‘when’. That being said, the Bank of England has made repeated assurances that interest rate rises will be gradual, and this seems to have filtered through to some consumers, who are willing to opt for variable mortgages to take advantage of lower pricing.

‘Once interest rate rises become a reality, we may well see consumer preference swing back to longer-term fixed rate products which guarantee a set rate.’

Murphy urged existing homeowners to check the rate on their mortgage to ensure it is the best deal.

‘Acting fast before interest rates rise could prove beneficial in the long-term,’ he said. ‘It is likely we will see the recent boost in remortgage application numbers reflected in lending figures over the coming months as lenders respond to growing demand.’




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