Between September of last year and February of this year the proportion of John Charcol clients choosing a fixed rate more than doubled, but this trend was reversed in March, resulting in virtually a 50/50 split between fixed and variable rates.
Commenting, Ray Boulger, senior technical manager at John Charcol, said: "In March 2010, exactly 1 year after the historic cut in Bank Rate to an all time low of 0.5%, just 17% of our clients chose a fixed rate mortgage. The proportion then started increasing as the cost of fixed rates fell, reducing the premium one had to pay for security, and as people started worrying about rate increases.
“With the cost of fixed rates bottoming out around the turn of the year and increasing worries about a rate rise as a result of the surging CPI, fixed rate take up jumped sharply from 32.2% in December to 56.0% in February. In March this figure fell to 49.9% as borrowers were put off fixed rates by the hike in price.
"Looking ahead, the fall in year on year CPI in March has taken some pressure off the MPC and as CPI increased by 0.6% in April last year any increase of less than that this month will result in a further fall in the April year on year figure. That said, in the following 3 months it will be more of a challenge for CPI to continue falling as the previous year's figure which will fall out of the year on year calculations will be + 0.2%, +0.1 and -0.2%.
"Despite the probability that CPI will remain well above the target 2% for at least another year there are plenty of reasons to expect our economic growth to remain weak and the first estimate of 2011 Q1 GDP figures on 27 April will be a key factor influencing Bank Rate decisions for the next few months.
“Another negative number, or even one that only just scrapes into positive territory, would significantly increase the likelihood of Bank Rate still being at 0.5% at the end of the year.
"Furthermore, with a Greek Sovereign default increasing looking like a matter of when rather than if, the risk of Eurozone banking contagion from a domino effect which would impact on the UK banks if it reaches Spain is very worrying and will be a factor restraining bank lending as they build up their reserves, and hence inhibiting the recovery.
"The stunning advance in the Finnish General Election of the Eurosceptic True Finns party from a 4% share to a 19% share will make it more difficult for the EU to agree further bail outs as, unlike our Government, the Finns very sensibly retained the right to approve certain major EU expenditure such as is required for bail outs.
"All this suggests the market is running ahead of itself in terms of the timing and speed of Bank Rate increases and we expect the take up of fixed rates to decline further until the best 5 year rates fall back below 4% to reduce the premium over variable rates to a more acceptable level.”
