First-time buyers fix deals in droves as rate hikes loom

The share of first-time buyers fixing mortgage payments to ward off the impact of potential interest rate rises has reached an all-time high, according to figures compiled for The Independent.

The Council of Mortgage Lenders says 94 per cent, or 252,000 of the 268,800 first-time buyers who got on to the property ladder in 2013, took out fixed-rate deals, up from 83 per cent in 2012 and a record high.

The figures come as a rapidly falling unemployment rate (down to 6.9 per cent in the quarter to February) stokes expectations of an interest rate rise early next year or possibly even sooner.

The Government’s Help to Buy initiative has opened up the market for 95 per cent loan to value mortgage deals, which have more than doubled in the past 12 months. Of these deals, more than 80 per cent are fixed rather than tracker deals linked to the Bank of England’s official 0.5 per cent rate.

The average buyer on 95 per cent mortgage of £150,000 is currently paying £904 a month at rate of 5.31 per cent, compared to 6.53 per cent in August 2007, according to Moneyfacts.

Ray Boulger, a senior technical manager at mortgage broker John Charcol, said: “This is a growing trend we’ve seen with first-time buyers since last year… interest rates probably won’t move for around a year, but you need the security of knowing what you’re going to pay.”

High loan to value mortgages virtually disappeared in the wake of the financial crisis, with just three 95 per cent deals available in March 2009; this has grown to 181, although it remains well below the 986 available in 2007, according to Moneyfacts.

The Bank of England is keeping a wary eye on higher risk lending, and tougher affordability criteria are set to be introduced by the end of the month. A Moneyfacts spokeswoman said: “Since the launch of Government schemes, the mortgage market has heated up with more product availability, but we have some way to go to get to pre-crisis credit levels.”