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Rise of long-term fixed-rate mortgages

Monday, 14 July 2008 12:00 AM

UK mortgage borrowers are seeking longer-term fixed-rate mortgages in search of stability, according to the Spicerhaart Financial Services (SFS) mortgage survey.

The monthly study finds two-year fixed-rate deals accounted for just 18 per cent of the market in June - down from over 60 per cent during 1997.

In contrast long term fixed rate deals of four years or more are at their highest level, over 34 per cent.

As well as security, consumers are also attracted by the financial advantages of choosing a longer term product; with the average two-year fixed mortgage is 7.07 per cent, compared to the average five year at 6.93 per cent.

However, it is not just the length of deals buyers are opting for which is changing, but the type.

The number of borrowers choosing variable products dropped from 28.7 per cent in January to 14.7 per cent last month, as continued uncertainty promoted homebuyers to seek a safer haven.



"A year ago people were choosing short term products as they were keen to regularly review their mortgage and seek out the best deal," said SFS operations director, Steve Cox.

"However, the changes in the mortgage market and the tightening of lenders' criteria coupled with widespread funding issues, have meant that borrowers are keener than ever to lock themselves in for the long term.

"This gives the security of knowing exactly what their monthly repayments will be for the next few years, and avoiding the future uncertainty of coming off a mortgage product, finding a new one and paying a succession of high arrangement fees," he added.

Lenders are also seeking security, argues SFS, offering borrowers longer deals to insure repayment over a longer period.

Encouragingly, the survey also shows first-time buyers are playing a larger part in the current market, totalling almost a third of all borrowers - having risen over two per cent from May to June, finds SFS.

"The proportion of first time buyers is significant and strong," added Mr Cox.

"The price drops across the country have created opportunities for purchasers, especially this group."

Chris O'Toole

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