With further rises predicted, customers face the choice of having the stability of a fixed rate mortgage or a cheaper variable mortgage. While fixed rates have been dominating the market, some lenders have reported an increase in the demand for variable products. So are fixed rate mortgages losing their hold on the market in favour of variables?
Sally Lauder, press manager at Alliance & Leicester: “We've definitely seen a shift from fixed rates towards demand for variable rate deals this year, in particular to our Base Rate trackers. This is in contrast to the past year where fixed rates have definitely been the mortgage of choice for the majority of borrowers. We’ve seen a significant increase in appetite for our five-year discount mortgage and our short-term Base Rate trackers have also been very popular. Following the August Base Rate change, the first movement for 12 months, we may see a gradual shift back towards fixed rates. However, variable prices continue to undercut fixed rates for the most part. Fixed rates continue to be popular for first time buyers and those on a tight budget who prefer the budgetary certainty they offer, whilst those on a more flexible budget tend to opt for variable rates where they can benefit from any downward movement in rates as well as account for any upward movements.”
Thomas Reeh, chief executive of blackandwhite.co.uk: “Our business has certainly favoured fixed rates. People get nervous when rates increase and the Base Rate is more likely to go up than down. We have seen a lot of aggressive fixed rates. We have 3,800 products on our panel, which is a bit more representative than one lender’s. But there is an underlying trend in that people are less sold on heavily discounted trackers with stings in the tail. The products that have grown are the ones that offer long-term true value like an all in one offset product. I think fixed rates will continue to be popular because of the Base Rate rise. People don’t like uncertainty and fixed rates give a level of comfort.”
Jeff Knight, director of marketing for GMAC-RFC: “We haven’t seen any shift towards variables. The market accepts that people like fixed rates. It gives them security, especially as people are speculating rates will go up. Fixed rates still make up the majority of our business. On the whole, people are in the mind set of taking fixed rates and that’s what they come to us for.”
Darren Pescod, managing director of the Mortgage Broker Ltd: “We have noticed a marginal reduction in the amount of fixed rate mortgage cases in the month of August, when 44 per cent of our cases were on fixed rates, down from 47 per cent in July. We are still finding that customers are prepared to pay slightly more for their mortgage on a fixed rate then to have the fluctuations of Bank of England Base Rate rate movements on tracker or variable deals. One other reason for the slight reduction in business may be that on buy-to-let (BTL) applications where lenders’ rental calculations are based on the chargeable rate, if the rate chosen was a slightly higher fixed rate this may limit the amount of borrowing as opposed to a cheaper variable dea
Jeff Knight, director of marketing at GMAC-RFC: “We haven’t seen any shift towards variables. The market accepts that people like fixed rate mortgages. They give borrowers security, especially as people are speculating that rates will go up. Fixed rates still make up the majority of our business. On the whole, people are in the mind set of taking fixed rates and that’s what they come to us for.”
Paul Darwin, head of intermediary sales for Skipton Building Society: “Without doubt, since the last Bank of England Base Rate change, we have seen a shift in the products people are taking out to ones other than fixes. Fixed rates are still relatively high compared to trackers and swap rates are higher as a result of the anticipation of a further rate rise, with lenders are pricing accordingly. But swap rates and fixes are fairly volatile and customers shopping around for the cheapest deals will migrate across to other products. But over the last 18 months, fixes have had a strong hold on the market and the shift is relative. Fixes are still the predominant product in the marketplace. But if swap rates and fixes remain high, people will opt for cheaper variables. It’s all about choice. Prior to the last Base Rate increase we saw a pick up in tracker products and we are still seeing more business than we have in trackers.”
