UK home buyers opting for variable mortgage rates

The expectation that low interest rates will remain for home buyers in the United Kingdom for up to three years has resulted in more buyers and remortgage with applicants choosing variable rates, new data shows.

According to Propertywire.com, the popularity of variable deals among people remortgaging their homes more than doubled in August to 20.8 per cent compared with 9.5 per cent, according to the National Mortgage Index from independent mortgage broker the Mortgage Advice Bureau.

This is put down to Bank of England governor Mark Carney issuing forward guidance on interest rates, and thus increasing the popularity of variable rates for remortgages to its highest point in over a year.

Using data from more than 500 brokers and 800 estate agents, the National Mortgage Index also showed that, while more than nine in 10 home buyers continued to favour fixed deals in August this was down by one per cent from July and the lowest since November 2012 when 89.7 per cent applied for fixed rates.

However, home buyers in London defied the trend towards fixed rates, with 91.8 per cent opting to fix in August: the first time this figure has passed the 90 per cent marker during 2013.

Just 82.7 per cent of buyers in the capital chose fixed rates in July and just 71.5 per cent back in August 2012.

The general shift towards variable deals was fuelled by the first increase in two and three year fixed rates for over a year.

The average two year rate rose for the first time since June 2012 to 3.69 per cent, having stood at 3.63 per cent in July 2013. Average three year rates also rose for the first time since July 2012, up from 4.02 per cent in July 2013 to 4.06 per cent.

In contrast, two year trackers continued to fall in August as they have done every month this year, with an eighth consecutive drop to 3.14 per cent in August from 3.28 per cent in July. Average five year fixed rates also fell to a new low of 3.83 per cent the lowest seen in over six years.

Competition between lenders continued to push product numbers up with 11,043 available on average during August.

This was eight per cent more than in July, the biggest monthly increase since April 2011, and means the range of products on offer has grown by 350 per cent in the last four years, from 3,158 in August 2009.

Head of lending at the Mortgage Advice Bureau, Brian Murphy, said these figures clearly show how influential the Bank of England can be on borrower sentiment.

He said, “Analysts may question whether interest rates can remain on hold until 2016 if the economy builds on recent progress and continues to emerge from the gloom. But the house buying public are clearly open to reassurance from the Bank, with more people willing to trade in the security of fixes this month for the benefit of lower rates.

”‘With five year fixed rates falling by 0.05 per cent and two year fixed rates up by 0.06 per cent, there are still plenty of reason to consider locking down for longer. With Londoners bucking the trend this month and fixing in greater numbers, it is clear that regional variations in market conditions call for careful consideration from borrowers to weigh up all their options.”

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