Leap in numbers opting for variable rates
According to the National Mortgage Index from Mortgage Advice Bureau (MAB), more homebuyers and remortgagors selected variable rate deals in August than in any other month this year.
Among remortgagors, the number going for variable interest rates more than doubled from 9.5% in July to 20.8% in August, a change in consumer behaviour which MAB attributes to the governor of the Bank of England strongly suggesting that interest rates will remain low for the next three years.
The increased popularity of variable rate deals may also have been prompted by an increase in the cost of fixed rates, with the average two-year fixed deal rising, from the first time since June 2012, from 3.63% in July to 3.69% in August. Average three-year fixed rates increased for the first time since July 2012, up from 4.02% in July 2013 to 4.06% in August.
Average five-year fixed rates, on the other hand, fell to a six-year low of 3.83% in August.
Two-year trackers fell again in August, as they have done every month this year, dropping from 3.28% in July to 3.14% in August.
However, fixed rates remained the choice of the majority, particularly among homebuyers, with 91.2% choosing a fix in August.
The number of mortgage deals available continued to rise, increasing by 8% between July and August to stand at 11,043. MAB calculated that the number of mortgage products on offer in the UK has increased by 350% in the last four years.
Brian Murphy, head of lending at Mortgage Advice Bureau, said:
“These figures clearly show how influential the Bank of England can be on borrower sentiment. Analysts may question whether interest rates can remain on hold until 2016 if the economy builds on recent progress and continues to emerge from the gloom. But the housebuying public are clearly open to reassurance from the Bank, with more people willing to trade in the security of fixes this month for the benefit of lower rates.
“With five-year fixed rates falling by 0.05% and two year fixed rates up by 0.06%, there are still plenty of reason to consider locking down for longer. With Londoners bucking the trend this month and fixing in greater numbers, it is clear that regional variations in market conditions call for careful consideration from borrowers to weigh up all their options.
“Despite August being the peak month for summer holidays, activity was still considerably stronger than the same time last year. In a fast moving market where conditions are improving every month, a seasonal break is no reason to delay a house purchase or sale.”