Interest in fixed rate deals starts to wane
Recent reports have suggested that consumer interest in fixed rate mortgage deals is now starting to fall, as consumers think that interest rates are unlikely to go much higher and therefore do not want to be tied into a fixed rate for two or three years in case interest rates begin to fall again.
Although it is widely expected that there will be a further rate rise of 0.25% this year, which would take the rate to 6%, fixed rates are already set higher because of the security feature and this means that those taking out these rates would end up paying more interest for the specified period if the rates stabilize or fall.
One mortgage expert stated: '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 added: '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.'
There is already a great deal of concern over consumers that are due to come off their fixed rate deals this year, as this will mean that their repayments will rocket. Those on interest only fixed rate mortgages could see their repayments soar by around 70% once the fixed rate period ends, and this could push many into financial disaster if they cannot keep up with the higher repayments.
Tom Smith
11th July 2007
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