First-timers opt for fixed rates, says CML

The prospect of higher interest rates has led a record number of first-time buyers opting for a fixed rate loan, data from the Council of Mortgage Lenders reveals.

Figures show 85% of first-time buyers chose a fixed rate deal in January, which is the highest figure on record, and just over 70% of home movers also decided on a fixed rate product.

The CML says it is encouraging that increasing numbers of first-time buyers are locking into the payment certainty a fixed rate mortgage provides, as they are the group that are more financially stretched and may suffer most if interest rates go up.

Overall, fixed rate mortgages accounted for 72% of all new loans in January which is the highest proportion since January 2006 and up from 69% in December.

The pricing of fixed rate loans continued to remain attractive compared to variable rate deals.

The average interest rate of a fixed rate loan in January was 5.27%, up from 5.23% in December, compared to the average interest rate of a discounted variable rate product which reached 5.54% up from 5.36% in December.

The survey shows an 11% seasonal fall in the number of loans for house purchase and remortgaging taken out in January – 162,300 loans, down from 182,300 in December.

But, this was still 6% higher than the 153,600 loans taken out in January 2006.

Michael Coogan, director general at CML says: “Increasing numbers of people – especially first-time buyers – are opting for a fixed rate mortgage.

Each month it seems that the prospect of another interest rate rise is balanced on a knife edge.

More and more borrowers are protecting themselves against this risk and choosing the certainty of fixing their monthly mortgage payments, which allows them to plan ahead with confidence.”