Borrowers are increasingly opting for short term two-year fixed rate mortgages over longer term deals as competition begins to return to the mortgage market as lenders seek greater market share, reveals Spicerhaart Financial Services monthly mortgage survey.
The survey reveals that 32% more borrowers opted for a short term two-year fixed deal in August. In contrast, the number of longer term fixed rates dipped by 12%. However, despite the level of two-year fixed rate deals being at its highest for four months, they are still down by over 52% from August 2007 (graph one).
Graph 1. Proportion of short and long term fixed rate mortgages.
Steve Cox, Operations Director of Spicerhaart Financial Services, comments:
“Borrowers are now attracted to short terms deals thanks to the drop in lending rates, with the average two year fixed mortgage rate now standing at 6.39% compared to 7.08% in July1.
“Previously consumers were looking for the long term security of five or more years fixed deals, but with lenders offering increasingly competitive rates, this situation is beginning to reverse with borrowers now looking to secure cheaper deals for short term products.”
Encouragingly, the survey also shows that first time buyers are playing a larger part in the current market, totaling 37% of all borrowers in August, having risen over 7% from the beginning of the year.
Steve Cox concludes: “The fact that short term mortgage deals are becoming more affordable will be welcome news for borrowers, particularly first time buyers looking to get onto the housing ladder. Combined with the news that property prices have fallen by 15% in many areas already this year and the temporary stamp duty holiday, there are now some great opportunities for first time buyers.”
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