Applications for fixed rate mortgages are up 30% from a year ago, on the back of falling rates, new research indicates.
Property firm Your Move finds 85% of arranged mortgages in July were at a fixed rate compared to 55% in 2004, while the period between January and June saw 75% of new borrowers on a fixed rate.
Your Move says fixed rates are ‘significantly’ cheaper than variable rate options and the gap is expected to widen following an expected cut in the interest rate next week.
Moreover, the savings on 2 year fixed rate deals have increased 13% during July, while almost doubling from the same period a year ago. Meanwhile 3 year fixed rate savings have increased 21% in the last month.
This mimics a report earlier in the monthfrom My Mortgage Direct (MMD), finding two year fixed rate deals have improved popularity for fixed rate applications from 25% in April to 38% in June.
Jon Round, remortgage analyst at Your Move, says: “The actual interest rates themselves on 2 year and 5 year deals are a full 0.25% below the best discounted variable rates. That means that even after the widely expected cut in base rates, discounted rates will not offer greater savings.”
He says constant economic news sways the market expectation and reaction and fixed rates move swiftly to reflect the changes, while variable rates generally move on changes to base rates.
Round adds: “Those who do wait or who take a discounted variable rate mortgage run the risk that market expectations could reverse again later this year, as they have done twice already in 2005, and so miss out on the best rates.”
Your Move mortgage also finds a drop in upfront fees, after a peak in May and June as lenders look to pick up new business ahead of their rivals.
Round says: “Fees became a controversial issue in 2005 and borrowers have complained vociferously at these extra charges. Lenders trying to find extra revenue in the face of wafer thin product margins appear to have pushed too far and we are now seeing fees come down again.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Gareth Vorster on 020 7968 4554 or email [email protected].IFAonline
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