Commenting, Ray Boulger of John Charcol, said: "The popularity of fixed rates with John Charcol clients has been on a roller coaster since the beginning of last year. The rapid increases in the cost of fixed rates during June eroded their value in insuring against future interest rate increases and so in July we advised more clients to take a tracker or discount rate. As a result variable rate take up more than doubled to 34.7%, with fixed rates' share of the market falling back to 65.3%. A modest increase in the availability of tracker and discount rates above 75%% LTV also facilitated the move away from fixed rates.
"We also analysed the split between fixed and variable based on the total amount of lending in each category and this threw up some very significant differences. Looked at on this basis fixed rate lending was over 10% lower at 54.6% of the total, with variable rates taking 45.4%. What this clearly indicates is that borrowers taking out large loans were much more likely to opt for a variable rate, which in most cases was a tracker. For some clients this is because they want flexibility to overpay more than the 10% p.a., which is typically the maximum allowed on a fixed rate without incurring an early repayment charge. It is the higher net worth clients who are more likely to want not only this facility but also see value in the superb flexibility offered by an offset mortgage, and most offsets are trackers.
"We have seen a further dramatic fall in the take up of fixed rate mortgages this month and it looks almost certain that fixed rates will take less than half of the market in August, both by case number and volume. This reflects the changing views on how long interest rates will stay low and in particular the actions of the Bank of England this month in the major extension of its Quantitative Easing programme. It also demonstrates the value of advice and that many clients want advice on the fundamental question of whether to take a fixed or floating rate. When that advice is presented clearly and the reasons for it explained it is respected.
"I expect the split between fixed and variable rate lending on the business which lenders get direct will still strongly favour fixed rates as many lenders do not offer advice, but only information, even though surveys show that many customers think they are getting advice!"
