Three quarters of borrowers choose fixed rates

Three-quarters of all mortgage applications (excluding remortgages) in January 2011 were for fixed rate products, say the Mortgage Advice Bureau.

Related topics:  Mortgages
Millie Dyson
17th February 2011
Mortgages
Fixed rate mortgages are now the product of choice for borrowers. Just 12 months ago, the picture was an entirely difference one. In January 2010 less than half (45%) of borrowers applied for fixed rate mortgages.

However, the levels are still significantly down on March, April and May of 2009 when more than 90% of applicants chose fixed rate deals.

In January 2011 the average LTV on mortgage applications was 72%, compared to 70.9% in December 2010. Although, securing mortgage finance at loan-to-values above 80% is the exception rather than the norm, there has been a noticeable increase in the availability of higher LTV products in the past three months.

This is clearly having an impact on the average loan-to-value levels on mortgage applications.

The average loan size on mortgage applications in January 2011 was £128,887 compared to £120,881 in January 2010, an increase of 6.6%, and numbers of mortgage applications in January 2011 were up by 23.3% on December 2010 and 18.4% on January 2010.

On the remortgage front, there has been a clear uplift in activity since the end of 2010, and despite a predictably quiet December, January 2011 saw remortgage applications back up to pre December 2010 levels.

The catalyst for this rise in remortgage activity has undoubtedly been borrowers on their lenders’ SVRs choosing to fix early in the New Year, with interest rate rises on the horizon.

This view is supported by the percentage of fixed rate remortgage applications rising from 51% in December 2010 to 69% in January 2011 as borrowers take risk and the unknown out of the equation in their longer time financial planning.

January 2011 figures also show that the average LTV on remortgage applications was 46.8%, significantly down on the 54.7% average LTV in December 2010, while the average loan size of remortgages applications in January 2011 was £150,691 compared to £143,174 in December 2010.

The average age of a purchase mortgage applicant in the UK in January 2011 was 37 years 7 months.

REGIONAL MORTGAGE REVIEW:

Welsh applicants are leading the way in the mass migration away from variable rate products with 86.2% of all mortgage applications in January 2011 for fixed rate deals. This compares with just 55.6% of applicants in the South West and 62.7% in London choosing fixed over variable rate mortgages products.

Average LTVs on mortgages applied for in January 2011 were highest in the North (79.8%) and lowest in East Anglia (69.2%), while average loan size (excluding London) was highest in the South East at £166,156 and lowest in the North West at £86,798. In London, the average loan size in January was £304,377.

The oldest mortgage applicants in January 2011 were in the South West, averaging 40 years 11 months, while the youngest were in Wales, averaging 35 years 11 months.

For remortgages, 91.7% of applicants in East Anglia chose fixed rate deals during January 2011, compared to only 45.7% of borrowers in the West Midlands and 40.9% in London.

NATIONAL/REGIONAL MARKET COMMENT:

Brian Murphy, head of lending, independent mortgage broker Mortgage Advice Bureau:

Fixed versus variable rates

“Not surprisingly January saw borrowers migrate to the safety that fixed rate deals offer. With a variety of fairly negative economic news, rising inflation and an increase in unemployment levels, borrowers who are active in the market, are erring on the side of caution and increasingly opting to fix their repayments.

"Furthermore fixed rate deals still offer extremely good value relative to historic levels and therefore we are seeing more people taking advantage of current pricing.
 
“In recent weeks we have witnessed lenders re-pricing many products, with some reductions, but on the whole rates have risen in February from last month’s levels, partly in response to the pricing of swap rates and lenders taking the opportunity to both curb demand and make a little more margin.

"With Base rates being held yet again it appears that the worry some borrowers have is that the longer the BOE hold off from raising rates the more significant the increase may be as and when it comes.

Loan-to-values


“On the product side, there hasn’t been any noticeable increase in appetite amongst lenders to lend at higher loan to values, although there are more products now available at 90% LTV than there were twelve and twenty four months ago.

"Although this competition should enable more first time buyers to enter the market, the rate differential between a product at 90% and one at 75% will put many first time buyers off, and accessing the market at a more affordable level means first time buyers are likely to remain reliant on parental contributions to afford to proceed.”
 
Mortgage applications
 
“Mortgage application numbers were up in January 2011 versus the same month last year, although much of the increase can be explained by the wretched British weather rather than a stampede of eager buyers.

“January 2010 saw heavy snow and ice affect many parts of the UK, resulting in large numbers of transactions being held over until the following month. January 2010 was also the first month following the end of the Stamp Duty holiday. This resulted in a bunching of transactions during December 2009 as borrowers took advantage of the nil tax window.

“The UK also experienced similar arctic conditions in December 2010, so a number of transactions that would ordinarily have taken place in December were
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