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Popularity of fixed-rate mortgages falls

Popularity of fixed-rate mortgages falls

Wednesday, 12 December 2007 12:00 AM

The popularity of fixed-rate mortgages is being eroded as speculation over potential cuts in the base rate mounts.

The Bank of England cut rates by 0.25 per cent to 5.5 per cent last week, and the potential for further cuts is growing, according to the Council of Mortgage Lenders (CML).

In response the number of borrowers taking out fixed-rate mortgages fell to 68 per cent in October, down from 72 per cent in September.

Fixed-rate mortgages have proved consistently popular during 2007, with levels running at 70 per cent or above.

However, the trend is now set to moderate as the expectation of further interest rate cuts lessens the need for borrowers to lock in and guard against rate rises.

Lending volume also remained strong during October.

A total of £33.5 billion was lent for mortgages in October, a nine per cent increase on the £30.6 per cent borrowed in September.

Most of these loans, however, were approved before the Northern Rock debacle, with lending expected to fall in the coming months.

"October is the last month we expect lending volumes to be higher than a year ago as lenders and borrowers will behave more cautiously in an uncertain and slowing market environment," said CML director general, Michael Coogan.

"Lenders have already responded to the credit squeeze by tightening lending criteria and increasing some loan costs."

Home movers typically borrowed 3.02 times their income, unchanged from September, while first-time buyers typically borrowed 3.36 times their income, down from 3.38 in September.