Fixed rate mortgages are declining in popularty according to independent mortgage experts, John Charcol.
41.0% of John Charcol clients choosing a fixed rate in April, down from 50.5% in March and 56.1% in February, which was the strongest month for fixed rates since mid 2009.
The trend so far in May suggests a further fall in the popularity of fixed rates. Ray Boulger, Senior Technical Manager at John Charcol
“So far this year we have sold twice as many 5 year fixed rates as 2 year fixed, although lenders generally have been putting most of their fixed rate promotional activity on the 2 year market, presumably because the headline rates are more eye catching. The rationale for taking a longer term view is that for clients who want the security of a fixed rate, and assuming a 5 year early repayment charge period (ERC) is acceptable, 2 year fixes only offer security during the period when it is least needed and if rates rise during that period it is only likely to be possible to re-fix at a higher rate after 2 years.
“For some clients, of course, low payments for the initial period is the top priority, but the shorter the timeframe being considered the less risk there is of significant rate rises and hence for clients in this category there is often a strong case for choosing a variable rate, either a tracker or a discount off SVR, to take advantage of the lower rates initially offered by such mortgages. With an increasing number of lenders now offering a droplock option, a term invented by John Charcol over 10 years ago, coupled with some deals available with no, or low, ERCs, this is often an attractive option for our clients who want the keep open the option to switch to a fixed rate if and when it looks attractive to do so.