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News: Borrowers move to variable rate mortgages

Demand for fixed rate mortgages has fallen by 16% as borrowers move to variable rate mortgages, according to a new report released yesterday.

The trend for remortgaging is continuing with a 15% increase since December, said the report from Hamptons Mortgages.

Jonathan Cornell, director of Hamptons Mortgages commented: "Despite months of speculation there has yet to be any significant movement in the Bank of England base rate. This has meant that as customers reach the end of their fixed rate deals they are remortgaging in order to take advantage of the newest rates on offer. Many borrowers are opting for discounted variable or tracker rates in anticipation of a base rate cut."

"However, many lenders are reliant on a combination of severe redemption penalties and borrower apathy to retain customers at the end of their mortgage deals. Despite this, the remortgage market shows no sign of slowing down- rising by 15% in the last quarter. Lenders must now rise to the challenge and start offering their existing customers deals which are as competitive as those for new customers."

What consumers are choosing (percentage of borrowers choosing the product category)

 

Mar/06

- 1 mth
(Feb/06)

-3 mths
(Dec/05)

-12 mths
(Mar/05)

2-year fixed

35.16%

51.01%

43.37%

29.61%

Longer term fixed

14.83%

10.84%

14.00%

12.57%

2-year variable

29.00%

19.27%

26.45%

29.08%

Longer term variable

21.00%

18.88%

16.19%

28.75%

Source: Hamptons Mortgages data March 2006

 Discounted variables attract increased market share

Demand for two year discounted variable rate deals has risen by 9.7% this month according to the March Hamptons best buy mortgage tracker.

By comparison, the popularity of short term fixed rates among new lending deals has dropped 15.9%. However, longer term deals are also proving popular with both fixed and variable rates deals at their highest levels for a year at 21.00% and 14.83% respectively.

5 year discounted variable rates offer greatest savings in first year

There is little to choose between the current best buy two year fixed and discounted variable rates. However, borrowers looking at long term base rate expectations are hedging their bets by opting for two-year discounted rates in anticipation of a cut at the end of the year. The best savings are to be found with longer term variable rates such as the 5 year discounted variable best buy which can mean as much as £1,655 in savings.

Remortgaging trend continues despite rising exit fees

Average exit fees rose by almost 4% this month, reaching £212. Lenders claim that these increases are the result of rising administration costs, but it seems more likely to be an attempt to discourage existing customers from remortgaging.

However, despite this cynical move, remortgaging remains a popular option for borrowers. At Hamptons, remortgages as a proportion of new loans have continued to rise, increasing by 14.9% since December 2005 to reach 31.8% this month. This is despite the fact that there has been very little change in rates in the last quarter.

Loan to value ratios increase as housing market confidence grows

Home purchase and remortgage loan to value ratios continue to increase, signalling increased confidence in the housing market among lenders. The average loan to value ratio for home purchases now stands at 72.1%, up from 50.4% in March last year. At 2.5%, there has also been a slight increase in ratios for homeowners remortgaging over the year.

By comparison, loan to values have remained relatively stable for buy to let borrowers, as lenders remain cautious about borrowing levels.

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