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Fixed rate lending preferred with potential interest rate rises

December 10th, 2014

The Bank of England confirmed yesterday in their regular Mortgage Lenders Statistical Release document that fixed interest rate options were vastly preferred by borrowers during the third quarter of the year. The figures stated a promising improvement in activity for the period, with £55.9 billion of funds lent to new borrowers, a rise of 13% on the corresponding period in 2013.

The sense that interest rate rises have been looming in the near future has spurred many borrowers to consider fixing as the safest choice in the current climate, and statements emanating from the BOE this week that borrowers could comfortably afford a 2 per cent increase will not change that perception. If the statements are to be believed this shift in stance by the BOE could mean that economists forecasting an initial autumn 2015 rate rise may need to reassess their view of the market.

During the third quarter the level of borrowers looking to fix continued to rise, so much so that this marked the eighth straight quarter where borrowers shunned variable rates of interest. The statistics show that 82.6 per cent of new mortgage advances were taken on a fixed rate, compared to 77.3 per cent in quarter three of 2013. At the mid-point of the recession in 2011, the level of fixed rates secured in quarter three were significantly lower, at 51.7 per cent of all advances made.

Passing comment on the figures, Dale Parry, a mortgage specialist broker for Contractor Mortgages Made Easy, said: “Fixed rate propositions have been vastly tempting in recent months, as lenders have vied for position to secure a share of mortgage business. When coupled with the sense that an interest rate rise is becoming more and more likely in 2015, it is hard to argue that not choosing securing one of these options is the sensible move.”

The first time buyer market saw a slight change in fortunes during the period, with the level of lending to this sector decreasing marginally to 21.7% of all loans advanced. However, the value of borrowing provided to those new to the market rose to £12.1 billion, reaching the highest amount advanced since pre-credit crunch in 2007, and confirming that this section has continued to improve through-out the year.

Parry noted that much could still be done to improve the market for first time buyers, with this area still largely uncontested by many lenders. He said: “The Help to Buy schemes have applied improvement in lending to first time buyers this year, but the simple fact is that lenders are still wary of offering competitive options at high loan to values. Based on current high LTV pricing, it is clear that no one lender in the market currently wants to swell their mortgage lending book with borrowers able to put down less than 15-20 per cent as a deposit.

“In an election year it would be heartening to see a party come forward to state that reasonable pressure on lenders to improve lending propositions to first time buyers would be part of their manifesto. With a sensible loosening of the belt on the part of the banks, we could see further improvement across the market, if the first time buyer sector can be resolutely supported in 2015.”

Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

Media Contact: Raman Kaur, Public Relations Manager

Tel: 01489 555 080

Email: media@contractormortgagesuk.com

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