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Comment: Loans lean towards the long term

The preference for shorter-term products may finally be on the wane

Craig CalderFixed-rate mortgages are now so popular and readily available that it feels as if they have been around forever. In fact, it is ‘merely’ 30 years since their introduction.

For a bit of perspective – and a short mortgage-related history lesson – on their introduction back in 1989, the average house price stood at £55,000 and the Bank of England base rate stood at 14 per cent, a far cry from the record lows of recent times.

In terms of rates, June 1989’s best fixed rate mortgage was a three-year deal from National Westminster Bank priced at a massive 12.4 per cent, although borrowers could pay as much as 12.99 per cent when taking out a similar product from National Home Loans Corp. Choice was also at a premium, with only seven available fixed-rate products which comprised of three-year deals in the main.

It is fair to say the popularity of shorter-term deals has continued to dominate the fixed-rate scene since its inception. But could it be that times are finally changing?

The recent Paragon Financial Adviser Confidence Tracking Index reported the overall preference for fixed-rate mortgage products hit another all-time high in Q4, rising to 91 per cent of all cases.

Changes in demand

Notably, it also found the preference for longer-term mortgage products had overtaken two-year deals for the first time. Some 48 per cent of residential and buy-to-let applications were at five years or more in Q4. That represented an increase of 7 per cent on Q3, and 15 per cent on the same period 12 months earlier.

Conversely, two-year terms, which have been the overwhelming preference over the past five years, made up 40 per cent of fixed and tracker cases in Q4. This was down 7 per cent on the previous quarter and 14 per cent on its peak, achieved in Q3 2013 and Q3 2014.

Although it is of little surprise that fixed rates are dominating the lending arena, the transition into stronger demand for longer-term deals has been far slower. Thankfully, the emergence of greater levels of competition, choice and flexibility has captured the attention of those borrowers who are adopting a longer-term outlook. And long may it continue.

Craig Calder is director of intermediaries at Barclays Mortgages

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