First Time Buyers opt for fixed rates

By: Darren Ferneyhough

The prospect of further increases in the base rate has triggered a record uptake of fixed rate home loans by first time buyers.
In January of this year, 85% of new homebuyers took out a fixed rate deal - the highest proportion on record, according to the Council of Mortgage Lenders (CML).
Among house-movers 70% chose a fixed rate deal.
The average interest rate of these home loans was 5.27%, following the 3 rate rises since last August.
"Each month it seems that the prospect of another interest rate rise is balanced on a knife edge," commented Michael Coogan, director general of the Council of Mortgage Lenders.
"More and more borrowers are protecting themselves against this risk and choosing the certainty of fixing their monthly mortgage payments," he added.
Such speculation will further fuel the increasing demand for fixed-rate deals on mortgages & remortgages, Michael Cooke from homeowner loans specialist The Loan Helper comments "of course, homeowners often need to raise further funds from time to time, and for those who have already secured a fixed rate, a remortgage often does not make financial sense compared to a secured loan which can often serve their needs much better by keeping that great fixed rate mortgage deal in place, yet still utilising available equity to secure a low rate loan to provide the funds required."
Despite the higher cost of borrowing, house prices are still on the up around the UK.
The Communities and Local Government Department (DCLG) reported recently that house price inflation in January had gone up to 10.9%, pushing the cost of the average home up to £205,286.
However, there are some indications that the market may, eventually, cool off.
The Royal Institution of Chartered Surveyors (RICS) reported that in February new enquiries to estate agents from potential purchasers dropped for the third consecutive month.
"The interest rate rises have started to worry would-be buyers with many concerned that they will be unable to meet mortgage repayments," commented Ian Perry, spokesman for Royal Institution of Chartered Surveyors.
"Affordability for many will continue to decrease in the coming months as the January rise, and further rises take effect."

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Darren Ferneyhough is web developer for The Money Helper and an authority on a number of areas in the UK financial services market. Darren currently writes for Loan-Sense and Mortgage-Sense as well as being instrumental in the design and strategy of the consumer loans site The Loan Helper

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