Print friendly version 12 May 2008

Borrowers make a beeline for fixed rates

More than three quarters of mortgage borrowers opted for a fixed rate in April, up from 64% in March, according to mortgage brokerage John Charcol.

Although increases in the number of borrowers taking out a fixed-rate mortgage usually occur when the Base Rate is predicted to rise, Katie Tucker, technical manager at John Charcol, said that April’s increase was primarily due to fixed-rate products being a quarter to half a per cent cheaper than tracker deals.

First-time buyers’ presence in the market fell in April, with those making new applications for mortgages now taking up 4% of the market, compared to 7% in March, and less than half of last year’s average of 10%.

Tucker said: “Not only has mortgage choice been all but eradicated above 90% loan-to-value, but the biggest lenders are charging interest rates around three quarters of a percent higher for borrowers who aren’t supporting the purchase with at least a 25% deposit.

“This means that a £150,000 mortgage costs around £93 more in interest every month for someone using only a 10% deposit, compared to a borrower taking £150,000 mortgage with a 25% deposit.”

Charcol also recorded a fall in demand for buy-to-let mortgages in April, with this kind of mortgage accounting for 2.5% of total mortgage applications. Tucker attributed this to lenders increasing the size of deposits required from 10% to 15% and in some cases, 25%, as well as an increase in the rental income.

She said: “Where a keen selection of lenders asked that rent covered 100% of the monthly interest payment throughout over the last six months; rental cover requirements in some cases, have reverted back to the likes of 125%. Other big players in the buy-to-let market including Mortgage Express, have increased their rent requirements from 110% of mortgage payment, to 120% and 1st National are now asking rent to cover at least 120% of the mortgage, not 110%”

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