Borrowers plumping for long-term rates

Borrowers are securing long term fixed-rate mortgages to relieve any uncertainty about the property market, according to Spicerhaart Financial Services.

Its research shows that while the number of short term two-year fixed-rate mortgages has plummeted, dropping to just over 18% of the market having accounted for 60% of all deals in June 2007, long-term fixed-rate deals of four years or more are at their highest level, representing 34% of the market.

Borrowers are not only switching from short to long-term fixed rates, but also from variable to fixed mortgages, with the number of borrowers choosing variable products dropping from 28.7% in January to 14.7% in June.

As well as security, consumers are also attracted by the financial advantages of choosing a long-term product. The average two-year fixed mortgage is 7.07%, compared to the average five year at 6.93%.

Steve Cox, operations director of Spicerhaart Financial Services, said: “A year ago people were choosing short-term products as they were keen to regularly review their mortgage and seek out the best deal.

“However, the changes in the mortgage market and the tightening of lenders’ criteria coupled with widespread funding issues, have meant that borrowers are keener than ever to lock themselves in for the long term.

"This gives the security of knowing exactly what their monthly repayments will be for the next few years, and avoiding the future uncertainty of coming off a mortgage product, finding a new one and paying a succession of high arrangement fees.

“The proportion of first-time buyers is significant and strong. The price drops across the country have created opportunities for purchasers, especially this group. Having been priced out of the market, first-time buyers are looking to make their first step on the ladder.

"Lenders must recognise this appetite to purchase and act to ensure that suitable products are available as soon as current market conditions make this possible. First-time buyers are the lifeblood of the property market as a whole and always will be.”