Statistics show that fixed rate mortgages soared in popularity in the first three months of the year.

According to a new index by mortgage brokerage John Charcol, the proportion of borrowers choosing to fix their interest rate shot up from 29.1% in December 2008 to 47.8% in January, 67.4% in February and 80.9% in March.

The results are a clear indication that mortgage borrowers expect interest rates to rise in the future. The Bank of England Base Rate is currently at an historic low of 0.5%, but the Government’s ‘quantitative easing’ measures are widely expected to boost inflation in the future, necessitating rises in interest rates.

“The increase comes as a result of a combination of several factors, the most obvious being that with Bank Base Rate now at 0.5% there is only one way for it to go – the only questions being the timing and the scale and speed of the increase,” commented Ray Boulger of John Charcol.

Boulger also believes that the extremely large margins being charged on tracker mortgages have also pushed more borrowers to plump for a fixed rate.

Tracker mortgages are currently typically being charged at around 3% over the Base Rate, which is reasonably attractive at present but could get very expensive when Base Rate rises.

The most competitive fixed rates now available are priced between 3% and 4% for two and three year fixes while the best tracker rates are around 2.25% to 3% over Bank Base Rate giving a current pay rate of 2.75% to 3.5%.

The John Charcol index reveals a big jump in the number of mortgages taken out to buy property compared with remortgages, and a significant increase in the number of first-time buyers applying for homeloans.

Andrew Hagger of comparison website Moneynet.co.uk warned that once the UK housing market revives, competition between lenders will increase, with many offering ‘gimmicks’ which will make it tricky to calculate which is really the cheapest mortgage.

“It is vital that would be borrowers, whether first time buyers, remortgagers or movers check the true cost of any deal before signing on the dotted line,’”he said.

“With a range of rate/fee combinations, there is no one deal that fits all, and with fee-free and percentage fee deals only adding to borrower confusion, finding the true cost of a mortgage is key unless you want to be needlessly pouring money down the drain.

“Don’t assume that a low rate or no fee deal is best. It’s essential that borrowers always compare the total cost of the mortgage they are looking at and not be swayed by a low rate or no fee deal,” added Hagger.

Reported by Your Mortgage & Remortgage

Mortgage rates will be cut after the Bank of England reduced the base rate to 0.5 per cent.
Cheltenham & Gloucester and Lloyds TSB announced that its standard variable rate (SVR) will receive the full 0.5 per cent cut.
This will drop it down to 2.5 per cent.
Stephen Noakes, commercial director for Cheltenham & Gloucester, said that the market has bottomed out for fixed rates, “give or take a little movement”, and advised lenders to try to get into a fixed-rate deal. “Even those who may currently be sat on a record low SVR should weigh up the immediate bonus it offers versus the longer term savings a five or ten year fix will secure,” he said.
Abbey mortgages are also having rate cuts, with the SVR being decreased by 0.45 per cent and existing variable rate deals cut by 0.5 per cent.
As with Lloyds and Cheltenham & Gloucester, the reductions will be made from the beginning of April.