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, comments on this and other findings:
"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.
"We said in last month’s commentary ‘All this suggests the market is running ahead of itself in terms of the timing and speed of Bank Rate increases and we expect the take up of fixed rates to decline further until the best 5 year rates fall back below 4% to reduce the premium over variable rates to a more acceptable level.'
"Fixed rate pricing is indeed now falling, on the back of lower gilt yields and swap rates. 5 year swaps have fallen back to 2.57% and at this level have retraced almost half of the increase from their all time low of 1.99% hit at the end of October last year.
"Consequently we expect to see more lenders joining Chelsea B S with sub 4% 5 year fixed rates, which is likely to arrest the trend away from fixed rates.
"The steady increase in the proportion of purchase business since February continued in April, albeit with only a modest increase after a sharp jump in March. Thus purchases represented 55.7% of our business in April, having increased from 43.6% in January, through 45.2% in February and 53.6% in March.
"This results from a combination of a modest increase in activity in the property market and borrowers being less keen to remortgage following the increased costs of fixed rates in the first few months of the year, coupled with expectations that Bank Rate increases are further away.
"There was again little change in the proportion of first time buyers (FTBs) last month but we are continuing to see the market for mortgages with LTVs between 80% and 90% improve.
"This will be welcomed not only by potential FTBs but also by the many first time movers who bought their first home with a high LTV mortgage shortly before the credit crunch, and in many cases have seen their property value fall, and are now mortgage prisoners.
"Yesterday’s announcement from Barclays/Woolwich of a 3.79% 2 year fixed rate to 90% LTV with a reasonable £999 fee, and reverting to a lifetime tracker rate of Barclays Base Rate + 2.99%, for purchasers of any Bovis home is exceptionally competitive and should be an excellent marketing tool for Bovis Homes.
"The lack of cheap generally available 90% LTV mortgages means that this is a good example of where a short term fixed rate is likely to be the ideal product for a high proportion of borrowers.
"As highlighted in the Ombudsman’s recent annual report, lenders’ inflexibility on porting, particularly for some older borrowers with interest only mortgages, is an added problem for an increasing number of borrowers.
"Indeed in some cases there appears to be a conflict between lenders’ concern that the FSA may consider a new mortgage unaffordable, even if the size of the mortgage is not being increased, and the basic principles of TCF!"
