Fixed Rate Mortgages popular with First-time Buyers

10 Jun 2009 Tell a Friend

New figures from the Council of Mortgage Lenders (CML) show that although the level of mortgage lending is down from last year, the number of fixed rate mortgages taken out in April increased.  In fact, 69 per cent of the total home purchase loans in April were fixed-rate products.   

When the Bank of England base rate dropped to 0.5 per cent, its lowest point in history, it was widely considered that rates had reached their floor.  Borrowers now seem to be hurrying to take out fixed rate mortgages to take advantage of the more competitive rates, according to the CML an average repayment interest rate of 4.83 per cent, before the base rate starts to rise.  According to Bob Pannell, the CML head of research, many first-time buyers are opting for the longer-term products, the 5, 10 or 15 year fixed rate mortgage.  He comments that "With expectations for rates to remain low in the near future, shorter-term fixed-rate deals are less appealing than attractively priced variable rate deals."  

The average first-time buyer needed a deposit of 25 per cent (unchanged from earlier in the year) and borrowed just under three times their income.   Home movers put down an average 33 per cent deposit and borrowed 2.63 times their income in April, down significantly from March's figures.  However, the emergence of several higher loan-to-value products in the market over the last few months suggests that the lending criteria will become more lenient in the months to come.  Indeed, potential buyers need to take out larger home mortgage loans for the market to stabilise.

Although life does seem to slowly be returning to the property market, it is not business as usual just yet.  The number of house purchase sales this April totalled 35,600, a 40 per cent decrease from the average taken from sales in the previous 8 years.  The level of caution that banks and building societies are showing in their lending is to be expected, and the hope is that a more responsible style of borrowing will be maintained. However, it is crucial that lenders continue to encourage first-time buyers and home movers with limited capital onto the property ladder by increasing in the number of financial products available to them.