Will house prices level off?

Published 10th Aug 2007

Despite the base rate rising for the fifth time in a year, the percentage of borrowers opting for variable mortgages increased by 50 per cent, demonstrating a growing belief that interest rates have peaked and house price growth will level off.

The Spicerhaart Financial Services monthly mortgage survey reveals that although fixed rate products remained the most popular, with 86 per cent of customers taking these out in July, the percentage of variable mortgages increased significantly from 9 per cent to 14 per cent of all deals.

Within the 14 per cent of variable deals, the highest proportion since October 2006, 11 per cent of borrowers chose mortgages that tracked the base rate, with 1.7 per cent choosing a discount deal and 1.3 per cent opting for other variable rates.

Steve Cox, Operations Director of Spicerhaart Financial Services, said: “The increasing proportion of variable mortgages indicates that borrowers are starting to believe that interest rates have finally peaked, as inflation stabilises, and are likely to come back down again before the end of the year.

“With interest rates still historically low, homeowners and first-time buyers, still confident in their financial security, are as keen as ever to move up the property ladder, even if this means borrowing more.”

The percentage of high loan-to-value mortgages rose for the sixth consecutive month, to a peak of 21 per cent up from 19 per cent and the level of first-time buyers also increased slightly to 37 per cent.

Cox said: “Perhaps surprisingly, shorter-term fixed rates saw a slight slip in popularity last month. However, the majority of consumers are still opting for fixed rate deals to protect themselves against further rate rises.”

The Spicerhaart Financial Services survey also revealed that the level of buy-to-let mortgages remains strong at 14 per cent of the market share. Almost three quarters of these mortgages were secured with a deposit greater than 25 per cent of the value of the property.

Cox said: “Confidence in buy-to-let is still high, as the demand for rental properties is as strong as ever. However, the unusually high percentage of borrowers with a 25 per cent plus deposit suggests that the investors are predominantly experienced landlords, able to release equity from a portfolio of other properties. Novice investors are more cautious about entering the market whilst interest rates remain high.”
By Jennifer Lowe

Source: ' What Mortgage '

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