9 out of 10 borrowers opting for fixed rate deals

Almost 9 out of every 10 (87%) residential borrowers chose a fixed rate mortgage deal in the second quarter of 2009, according to Legal & General’s sixth report in the ‘Mortgage Purchase Index’ series, which analyses trends from thousands of mortgage applications made in the last quarter.

The figure compares to 71% in the first quarter of 2009, showing that the preference among buyers for a fixed rate deal has gone up by nearly a quarter (23%). Borrowers have been clamouring to secure fixed rate deals as news hit home that rate could only go one way now that the Bank of England base rate has hit bottom.

The research from Legal & General shows that the average two year fixed rate increased to 5.46% from 4.78% in the first quarter of 2009. However, average three, five and ten year fixed rates all dropped. In the last fortnight, however, the number of lenders increasing the APR on their fixed rate products has hit double figures.

Stephen Smith, Director of Housing at Legal & General said:

Borrowers who are prepared to take out variable rates have been few and far between in the past three months. And who could blame them? Margins on these products are high and it’s almost a cast iron certainty that when the base rate next moves, it will be upwards. Fixed rates had been offering the full package until recently, in that they had been getting cheaper and they offer valuable peace of mind in a turbulent and uncertain environment. Some of the fixed rates on offer have been very good value, however many are now very much on the rise.”

“Average three, five and ten year fixed rates all dropped in the period from March to May, but a hardening of swap rates in the past few weeks will no doubt feed through to higher fixed rates in our next report in Q3. Average loan-to-values have not varied too much over the past year and a half, with residential LTVs hovering around the 60% level. It feels like we are entering a new phase of the credit crunch now though – talk of a recovery has been gathering pace and fixed rate pricing may well have bottomed out. There has been no significant upturn in house sales or mortgage lending, but both consumer and adviser confidence is up. Let’s hope this translates into real results.”

If you are considering moving your mortgage to secure a better rate, TotallyMoney.com can help. Just visit http://www.totallymoney.com/mortgages/ and fill in your details to receive a tailored quote that could save you thousands.