Just over a third (34.3%) of borrowers chose a fixed rate in September, the smallest proportion this year, and there is no sign of the trend changing in October, according to the John Charcol Index, the monthly mortgage activity monitor from John Charcol, the UK's leading independent mortgage adviser.
Ray Boulger of John Charcol comments, "Most fixed rates still look too expensive. However, the best fixed and variable rates have got cheaper this month, with some real competition now emerging in some sectors of the market. Yesterday saw Northern Rock launch a 4.99% 5 year fix up to 70% LTV with a relatively low fee of £595 for purchases (£995 for remortgages, but with a free valuation and free legals) and this new aggressive stance is helping drive some value back to the fixed rate market.
"Nothing has happened over the last few weeks to change our view that interest rates will remain low well into 2011 and last week's weak GDP figures, showing that we are now in the longest recession since records began, supports this view. Consequently we have continued to advise the majority of our clients to take a variable rate mortgage, as the differential between fixed and variable rate pricing still means that fixed rates are discounting a quicker and larger rise in interest rates than looks likely."
Boulger continues, "The proportion of purchases increased marginally last month, to 57.8%, a record percentage for the year. First Time Buyer (FTB) activity as a percentage of total purchases remained subdued in the low double digits at 10.4%, with many potential FTBs still either struggling to find a deposit or failing to meet lenders' onerous credit score requirements for high LTV mortgages. The FTB market has largely become one divided between those with parents able and willing to help and those who are not so lucky. Recent figures from the Council of Mortgage Lenders show that 80% of FTBs now get parental help with their mortgage. For those without access to such help often the only options are either saving for many years or one of the Government's Homebuy schemes, if they qualify.
If FTBs had anticipated having to save for a deposit no doubt many would have cut back on discretionary spending and started saving earlier, but with 100% mortgages being readily available to those with good credit until early last year the need to save was not such an obvious necessity until then, even though it was always the sensible thing to do."
