Homeowners opting for fixed rates as mortgages increase Demand for fixed-rate mortgages rose in June on uncertainty over interest rates, as lending to homeowners increased.

Published 12th Aug 2010

The Council of Mortgage Lenders (CML) said 48pc of new borrowers took on fixed loans, the highest proportion so far this year.

There were 52,000 mortgages advanced for house purchases in June, an increase of 19pc compared with May and 14pc more compared with June 2009. The total value was £7.6bn, up 23pc from May and 27pc from June 2009. It was the 12th consecutive month in which lending was higher than a year earlier.


In the second quarter as a whole, 136,000 or £19.7bn of new loans were issued, an increase of 20pc in both volume and value compared with the first quarter.

Despite the rise, the CML said it remained cautious about the short-term outlook for the housing market.

"For the time being, the effects of government spending cuts have yet to make an impact on mortgage demand, and activity continues on its upward trajectory," said Paul Samter, economist at the CML.

"But we still expect house purchase activity to be muted in the coming months. Both consumer demand and lending capacity remain distinctly difficult to call, especially in the light of the Government's austerity measures and their possible impact."

Fixed-rate mortgages fell in popularity during the crisis, as borrowers took advantage of low interest rates and the remote prospect of any increases.

"The growing number of borrowers opting for a fixed-rate deal suggests concern about the direction of interest rates," said Nicholas Leeming, commercial director of Zoopla.co.uk, the property website.

"They are increasingly looking for added security to insulate themselves against the prospect of rising interest rates and seeking more certainty in their monthly outgoings as household expenditure rises."

Interest rates have been at the historic low of 0.5pc since March 2009, and economists do not expect the Bank of England to start raising rates until next year.

The CML said that fixed-rate mortgages were also starting to find favour again because costs were starting to fall.

The figures showed that lending for remortgages increased modestly in June, to 27,000 from 26,000 in May. It was sharply below the 34,000 remortgages that went through in June 2009.

In the second quarter, there were 77,000 remortgages worth £9.6bn, a 2pc rise in volume but no change in value compared with the first quarter.

Loans to first-time buyers also increased, to 52,000 from April to June from 43,400 in the first quarter. The average loan-to-value for first-time buyers in June was 76pc.

Source: ' Telegraph '

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