Fixed rate mortgages turn 30 years old

Michael Lloyd

August 7, 2019

Fixed rate mortgages have turned 30 years old this year.

Since they launched in June 1989 fixed rates have fallen dramatically, with noticeable competition seen over the past decade in particular. Moneyfacts data showed the average 2 and 5-year fixed mortgage rate has more than halved, from 5.21% and 6.10% in 2009 to 2.49% and 2.84% respectively today.

Rachel Springall, finance expert at Moneyfacts, said: “Fixed rate mortgages have clearly become a firm favourite among borrowers and they continue to cement their appeal during times of economic uncertainty.

“Borrowers searching for peace of mind when it comes to their monthly mortgage repayments may well consider a longer-term deal and thankfully there is plenty of choice today.”

One of the lowest deals to surface back in June 1989 was a 3-year fixed deal from National Westminster Bank, charging 12.4%.

Last week, Virgin Money launched the longest fixed rate mortgage seen in a decade. Its 15-year fixed product is the first repayment mortgage of this length seen since 2009, when Britannia offered such a deal.

According to the most recent Land Registry data, the average house price hit £229,431 in May 2019, seeing it stand almost four-times higher than the £58,658 recorded in May 1989, three decades ago.

This rise does lead to a hurdle for first-time buyers though, as they will need to amass larger deposits.

Experian’s Credit Barometer report showed that the average first-time buyer deposit has risen by 17% over the past year alone, up from £26,498 to £30,945.

Springall added: “Mortgage lenders have embraced fixed rate mortgages over the years and they continue to expand their range to accommodate different types of borrowers – for example, the recent entry of Virgin Money’s 15-year fixed rate mortgage into the market.

“Due to rising house prices, first-time buyers may now have to stretch their deposit further to get onto the property ladder. Indeed, the average deposit is around £30,000 today according to Experian, which is more than some may well be earning per year.

“Separate data from Lloyds Bank suggests first-time buyers are waiting longer to get a home too, as the average age of a borrower stands at 31 – two years older than a decade ago.

“Meanwhile, lenders are also extending the maximum mortgage term, as the majority of the fixed market (55%) now offer a maximum term of 40 years and almost two-fifths of the market caters for those looking for a maximum term of 35 years (38%).

“This will no doubt help borrowers looking to make their monthly repayments more affordable but also enable those who are retiring later in life to secure a loan.

“Overall, the fixed rate mortgage market continues to improve and adapt to cater for borrowers, but as the months ahead may be challenging for new or existing homeowners amid economic uncertainties, it will be interesting to see how lenders adapt to entice new customers and keep the market moving.”

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