The plethora of mortgage deals available in the UK market helps it to remain one of the most competitive sectors in financial services. Recent figures from the Council of Mortgage Lenders (CML) reveals the majority of mortgage business completed in the last three to four months has been done in the fixed rate market.
A closer look reveals the proportion of fixed rate business rose from 56 per cent of all completions in quarter two of 2005 to 76 per cent in the final quarter. So what has caused this upturn in the number of clients opting for fixes?
Ian Howell, an IFA at Capital Tower, says: “Everyone is looking for a bit of certainty so fixes are a good option. Currently, fixed rates are offering better value and people are taking advantage as they want to lock in so they can budget their expenses.”
Security
Financial security has always been important for clients and has to be the number one reason behind opting for a fixed rate deal. However, the recent jump, from 287,000 completions in Q2 2005 to 449,500 in Q4 points to wider factors influencing the consumer.
Joe Wiggins, media relations executive at Abbey, says: “Swap rates are creeping up so brokers may be advising clients to opt for fixes. Also, two-year fixed rates from two years ago when rates were very low, are finishing so people are looking for new deals and are tempted to lock into a fix again.”
Paul Fincham, press officer at Halifax, also points to wider economic interests: “You have to think about the impact of utility prices because of the high cost of oil, gas and council tax bills. People often end up weighing up the different factors. Peace of mind is always important and at some point in time, you’ll see people wanting security and that’s when fixed rates peak.”
Product choice
This would suggest much of the current popularity is stimulated by consumer demands for more security in their financial dealings. However, clients wouldn’t opt for fixed rates if they weren’t good value and there are currently a lot of competitive deals out there.
James Cotton, mortgage specialist at London & Country, says: “It often comes down to price and at the moment, the price of fixed rates is very competitive and they are similar to discount and tracker rates. Usually, you have to pay for the security of a fixed rate so people are taking advantage.”
It goes without saying that if fixed-rate business is booming, other areas will be affected. According to the CML, discount business is down 9 per cent and tracker completions 10 per cent in the period between Q2 and Q4 2005, accounting for the 20 per cent rise in fixed rates. Cotton says fixes are always more popular and the allure provided by the good deals on offer is drawing business away from other options.
“Demand is always split between fixed and discount,” he says. “People will always want fixes and at the minute the prices are very good so their popularity will continue over the short-term.”
Long-term
This has also brought longer-term fixed rate deals back onto the market. The Woolwich and Nationwide are just two lenders to offer 10-year fixed rate deals and Fincham believes these deals are currently offering good value. “Recently, 10-year money has been very competitive, allowing 10-year fixes to come out,” he says. “If the 10-year deals are as competitive as the two-year deals on offer, people may plump for them.”
However, despite offering good deals, consumer take-up has been slow as people are reluctant to lock themselves in for such a long period.
Dennis Kavanagh at Web Financial Services says: “You are locking in for a long time but there’s little flexibility for review. We’re getting more people in for five-year deals but not 10.”
Continued popularity?
With the constantly moving mortgage market operating within a fragile global economy, the continued popularity of fixed rates is difficult to predict but views seem to rally behind the fixed rate flag.
Michael Brill, director at Baronworth Investment Services, says: “People have remortgaged a lot in recent years for holidays, etc, so they are up to the hilt in borrowing and want to ensure they can make the payments if the economy turns sour. So providing fixed rates stay low, their popularity will continue.”
David French is a news reporter at Mortgage Introducer
