Nelson Mortgages

The popularity of fixed rate mortgages has started to cool off, after month of intense interest from consumers trying to avoid the pinch of a series of interest rate rises. After the first couple of interest rate rises last year people were flocking for fixed rate deals, as analysts and economists were predicting further rate rises would take place in the near future. Since that time, a further three interest rate rises of 0.25% each have taken the base rate to 5.75% - it’s highest in six years. This has resulted in fixed rates becoming too expensive for some consumers, as the rate is set at slightly higher than the base rate.

Although some analysts are predicting that there will soon be yet another interest rate rise – the sixth in the space of a year – many consumers now think it unlikely that the interest rate will go much higher and therefore do not want to fix themselves in at the current high fixed rates available.

According to one industry professional: ‘With the market having fully factored in not only this rise, but also another one to 6%, Swap rates are now at their highest since 2000 and most fixed rates look expensive compared to discounts and trackers, unless bank rate goes beyond 6%. While fixed rates have always been popular due to the security they provide, we are now seeing a fall in the proportion of borrowers choosing a fixed rate as borrowers decide that rates are close to their peak, thus reducing the value of paying a premium rate for interest rate protection. ‘

He also stated: ‘Currently, the best two-year tracker mortgages are around 0.35% cheaper than the best two-year fixed rates, even after the effect of the latest rise. Thus a fixed-rate mortgage will only be cheaper if bank rate rises rapidly to at least 6.25% and stays there, or goes higher, for some time.’

Popularity: 47% [?]