Borrowers switch back to variable-rate mortgage deals

A leading mortgage broker says that the trend of new borrowers opting for fixed-rate mortgage deals over variable rate ones has eased.

Mortgageforce says that the percentage of mortgage applicants it has been forwarding to lenders who want a fixed-rate mortgage has fallen from 75 per cent to 63 per cent in the past month.

"It shows that borrowers are fickle, and a low-enough pay rate can turn heads," said Katie Tucker, technical manager at Mortgageforce. "Lenders released some storming tracker and discount mortgage rates in response to the rush on fixed rates in June, because their own loan sheets have to have a balance between fixed-rate customers and variable-rate customers," she added.

Fixed-rate mortgages have been in demand, for a long time, as customers feared that the current historical low levels of UK interest rates would not hold and as a result that variable-rate mortgages – such as trackers and discounted deals – would become more expensive. However, many now believe UK interest rates will remain on hold for a while as uncertainty persists as to whether the UK is moving out of recession. There may even be a chance that mortgage rates will ease as the price that lenders pay to finance home loans – called Libor – is currently the lowest point since the start of the credit crunch.

"Three-month Libor is now down to a record low of 0.87 per cent and six-month Libor only slightly higher at 1.09 per cent, suggesting the market doesn't expect to see a bank rate increase for at least six months," Ray Boulger from broker Charcol said. In addition, Mr Boulger, as have a host of leading market commentators, reversed his prediction of house prices continuing to fall this year. "With confidence returning to the housing market, and despite the obvious problems such as increases in unemployment to come, lack of mortgage finance and, in particular, lenders' lack of appetite for higher loan to value lending, I now expect house prices to show an increase of at least 5 per cent this year."