More than eight out of ten people are choosing fixed rate mortgages over variable rate alternatives, one nationwide mortgage broker said on Wednesday, up from just over half a year ago.
Estate agent chain and mortgage broker Your Move said 85 percent of the customers for whom it arranged a mortgage in July chose a fixed rate option. This increased from 75 percent during the first six months of the year and 55 percent of customers who chose fixed rate mortgages in July 2004.
"Savings on fixed rate mortgages have continued to climb steadily to record levels and now outstrip those on variable rates comfortably," said Jon Round, remortgage analyst at Your Move.
Round said the latest fixed rate deals over two, three or five years would look particularly attractive to those borrowers who had been put on standard variable rates (SVRs) after their own discount rate had expired.
Round's "remortgage index" -- which tracks the savings borrowers could made by switching from an average SVR to a market-leading two-year fixed rate deal -- has seen the potential savings available to borrowers almost double.
Using data supplied by independent firm Moneyfacts, it showed borrowers with an outstanding mortgage of 100,000 pounds could save 1,920 pounds in one year by switching from an average SVR to a market-leading two-year fixed deal. Borrowers who switch to a best-buy two-year discounted variable rate could save 1,640 pounds.
A year ago, switching to a market-leading two-year fixed deal could have saved borrowers 980 pounds over a year.
Unlike SVRs, which rise or fall according to changes in the Bank of England's base rate, fixed rate mortgages are determined by the 'swap rates' available to banks on the money markets. These have been falling steadily over the last year, allowing lenders to offer increasingly cheap deals.
However, Duncan Pownall, mortgage development manager at Bradford & Bingley, said it would become increasingly expensive for lenders to offer such cheap fixed rate deals after swap rates rose by 10 basis points at the start of the week.
"Pricing will become more of an issue over the coming months," he said.
Instead Pownall was seeing more lenders offering deals with no tie-ins or lower fees as borrowers were being enticed by more than just the headline rate.
Pownall said that current market leaders for two-year fixed deals were Alliance & Leicester at 4.24 percent, Newcastle at 4.22 percent with market leaders Halifax and nationwide following closely behind, with 4.29 and 4.39 percent respectively.
However, he said it was important that borrowers weighed up the cost of the entire deal to ensure they were getting good value.
"It is crucial borrowers aren't tempted by the headline rate alone. Remember that whilst these rates do look attractive, some sport fairly hefty arrangement fees, not always ideal for those with smaller loans," Pownall said.
Despite the prevalence of fixed-rate deals in the market place, figures from the Council of Mortgage lenders showed that 53 percent of borrowers had variable rate mortgages.
Variable rates are directly affected by changes to the Bank of England base rate.
Forty-three out of 47 economists questioned by Reuters predicted the Monetary Policy Committee would cut borrowing costs by a quarter-point to 4.5 percent when it meets on Thursday.
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