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Fixed deals stop clients getting in a fix

In everyday conversation to get yourself ‘in a fix’ means to get into a spot of bother. On the other hand, in mortgage jargon, it means stability and security, and brings with it the benefit of knowing what mortgage repayments will be.

The idea of opting for a fixed rate is to cut the chances of getting into financial bother, and recent Council of Mortgage Lenders figures show that more first-time buyers are opting to fix. In January this year 85% of all first-timers chose fixed rate deals, with just over 70% of home movers opting to do the same.

Should we be surprised by this? No. After all, the base rate has increased by 0.75% in the past nine months and borrowers are not willing to take a punt on rates being cut any time soon.

Indeed, the CML figures also reveal that on average, fixed rates have the competitive edge on discounted variable rate products. The average interest rate on a fixed deal in January was 5.27% compared with 5.54% for discounted variable rates.

Many first-time buyers are working to a strict budget, counting every penny to ensure they can pay their mortgages. Knowing their monthly commitment makes sense, especially considering the predictions of interest rate changes that are a feature of our market.

Nowadays, every man, woman and economist is able to make a prediction of where the base rate may go next but most experts expect a 0.25% rise in the next two or three months. This is filtering through to borrowers who are tending to opt for fixed rate deals.

The timing of any increase is far from predictable, especially considering the uncertain state of global stock markets and the fallout in the US equity market from the difficulties in the sub-prime mortgage sector there.

Central bankers across Europe may wait and see before committing themselves to the next round of base rate moves.

Meanwhile, brokers and their clients have a range of competitive two and five-year fixed rates to choose from. There are even some notable three-year deals, although these tend to be similar to five-year rates.

Brokers are well placed to find suitable fixes for their clients so it seems likely that borrower behaviour will continue along its present path. First-timers especially have decided that fixing now means less chance of them getting in a fix further down the line.

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