Borrowers opt for variable rates in December

20 January 2010 | By Natalie Martin

The proportion of fixed rates has fallen below 20% for the first time since August 2008.

Ray Boulger, senior technical manager at John Charcol, says whilst the split between variable and fixed, at face value, seems dramatic, it is really no surprise as trackers can offer best value at the moment.

He says: “With the average difference between the best fixed rates and the initial rate on the best trackers around 1.5% in favour of trackers, it will currently take a substantial rise in bank rate for a borrower who takes a tracker to be worse off than one who opts for a fixed rate.

“Of course, some people always prefer the security and comfort that a fixed rate naturally brings, but in the current market you really do need to question whether you are paying over the odds for that security. Generic advice on whether to take a fixed often simplistically states that if you cannot afford a rise in rates then you should take a fixed rate. 

“If rates for both fixed and variable are at the same level then clearly that is a no-brainer, but when there is a gap as wide as in today’s market being generic can easily be misleading.”

Boulger says the Bank Rate is likely to stay very low and not above 2.5%, for quite some time, and the cost of fixed rate mortgages are not yet falling.

He says: “Despite December’s unexpectedly large rise in the inflation numbers most economists expect the Consumer Price Index to fall back below 2% by next year, even without a significant increase in interest rates, and the Bank of England takes a two-year view on inflation.  

“A key part of our service will be to advise our clients when we think they should switch. In the short term the main risk on interest rates is political and so following the opinion polls in the run up to the election will be very relevant to forming a view on interest rates.”