According to a study by Fool.co.uk, homeowners also believe more interest-rate rises are on the horizon.
A rate rise in August 2006 saw four out of 10 homeowners opt for fixed-rate mortgages. Another increase in the cost of borrowing in November saw seven out of 10 homeowners opt to fix their mortgage rates. This jumped to almost eight out of 10 borrowers after a third increase in January this year.
First-time buyers have traditionally been more cautious over interest rates than people looking to remortgage. However, homeowners who remortgage are now showing signs of increased caution too. In August 2006, eight out of 10 first-time buyers took out fixed-rate mortgages. This rose to nine out of 10 in January 2007. Over the same period, fixed-rate products taken out by people remortgaging has jumped from 40 per cent to 80 per cent.
David Kuo, head of personal finance at Fool.co.uk, said: “Fixed-rate mortgages are the best way for homeowners to insulate themselves from rate rises. It’s ideal for people who need to know where they stand financially from pay packet to pay packet.
“Currently, interest rates are expected to rise 0.25 per cent within the next two months and a further 0.25 per cent six months after that. This means homeowners may need to find an extra £83 a month or £996 a year in higher interest payments on a £200,000 loan.
“There is, of course, no guarantee that base rates will rise to 5.75 per cent before the end of 2007. However, borrowers should resist the temptation of second-guessing the direction of interest rates when their homes are at stake.”
