Pete Mugleston, director and financial advisor at Online Mortgage Advisor, gives his account as to what mortgage products are popular at the moment
With mortgage rates continuing to set record lows this year, many borrowers have seen their monthly payments fall to mouth-watering levels, with current two-year deals as low as 0.98 per cent for a tracker rate (Chelsea BS) and 1.05 per cent for a fixed deal (Post Office).
For the first time ever average two-year fixed deals are below 2 per cent, five-year deals below 3 per cent, and it’s possible to fix for 10 years at under 3 per cent – rates that should be attractive enough to spark action even in those happily sat on cheap standard variable rates; a trend many feel will only come when rates start to rise.
To that end things looked positive in April when the Council of Mortgage Lenders (CML) reported an encouraging 10 per cent increase in remortgage activity month on month. However, it appears any momentum built could have been squashed with conveyancing outsourcer LMS reporting a 6 per cent drop in remortgage activity and a 13 per cent decrease in lending volume in May.
It will be interesting to see figures for June and the rest of the summer to see if May’s reduction was related to market uncertainty around the general election, and what the reaction will be to the conservative government in play.
So what products are people taking?
Since the Bank of England dropped rates to 0.5 per cent many have been on the edge of their seats anticipating an increase; and fixed rate deals have dominated the market. The two-year fixed rates have been by far the most popular, which is to be expected given the sheer volume of these products offered topping the rates tables.
Despite some fantastic three, five and ten-year fixed rate products it looks like the threat of a rate increase is not enough to warrant the additional cost of fixing longer for the majority, which is echoed further in recent CML figures that show a resurgence in the popularity of tracker rates.
The number of new loans on fixed rates fell below 80 per cent for the first time in over 16 months. Although many find security in fixed products, it appears that deals like Chelsea’s 0.98 per cent prove too good for a growing number of people to ignore.
Decisions
My personal opinion for anyone not sure about which product to take, is that it’s a gamble either way. Fix for longer and if rates stay low you‘ll pay more; fix for a short time or take a tracker and if they go up you’ll pay more.
All you can do is follow your own instinct and take a product that best suits you – if having a variable rate would keep you up at night and you have no plans to move or refinance, fix for longer; If you can afford rises and want to get the cheapest deal going, go for a tracker or a shorter-term fixed deal.
Whatever you choose bear in mind that the type of borrowing you’re doing will have an impact. Our customers at Online mortgage advisor tend to have more specialist needs such as adverse credit or complications with self-employment and are more likely to fit with specialist lenders on higher rates.
This motivates many to opt for shorter-term deals in the hope their situation improves enough to fit with the high street when they expire, rather than locking into a longer-term fixed rate with penalties to refinance.
