The other day, we were talking in the office about how everyone is going for fixed-rate mortgages. It turns out that last month it was 96% of all new home buyers. That figure comes from recent research by the Mortgage Advice Bureau.
It might seem odd, if you dig a little deeper and notice that the price is rising on fixed-rate products. As Mortgage Strategy points out, 2-year fixed-rate products rose 7 basis points in February from 3.52 per cent – the lowest point in the last year – in January. A basis point is equal to 1/100th of a percent. Those 100ths might seem like a small number, but they add up.
Let’s look at an example. We’ll plug a mortgage amount of £250,000 into a repayment calculator twice, and vary them by only 7/100ths of a percent. The repayment terms will be the same, let’s say 25 years. We’ll ignore any fees or sundries, just to see the difference in the mortgage repayment itself.
At 3.52% – the lowest of the year – we get a monthly figure of £1,254. If we add 7 basis points, we’ll end up paying a tenner more each month (£1,264). It ends up costing almost £3,000 more over the life of the mortgage.
What makes it seem really odd is that tracker mortgages are falling in price. As Mortgage Strategy puts it:
“In contrast, average tracker rates fell 6 basis points between January and February to 2.82 per cent – the lowest recorded in over six and a half years, since MAB [Mortgage Advice Bureau] began recording the data.”
So, why on earth are people choosing to pay several thousand pounds more at the moment?
Well, MAB’s Brian Murphy (Head of Lending) is spot on:
“Buyers are very much aware that this golden age of low-priced mortgages will not last indefinitely. The surge of activity should help to keep rates competitive but consumers may struggle to find many better deals in the months ahead than those already out there.
Five-year rates have been creeping up since last summer, so the chance to lock into a low interest rate is well worth considering. With property gaining in value, it’s no wonder so many buyers are keen to buy now if their finances allow it.”
We’re expecting to see this trend continue for a while, and we’re excited by the competition. At the moment, there is a growing variety of products to choose from. It lets us compare a much better selection for our clients.
If you’re looking to buy a house, drop us a line, and we’ll start searching for the right mortgage for you.