Long term trackers dominating
Some 65% of cases in the month took a variable rate product and 34%, by far the most popular with the more discerning borrowers were term trackers, who were eschewing the headline grabbing 2-year rates, in favour of longer term margin security.
Simon Collins, technical manager at John Charcol, said: “Savvy clients are preferring to sacrifice a few basis points in the first couple of years of their mortgage, in order to give themselves the option of either being ERC free or remortgaging when the early repayment charge period ends, but staying on the same margin if more beneficial, rather than having to remortgage before the payment shock of going onto their lender’s much higher standard variable rate.”
Remortgaging was increasing in popularity as more borrowers reached the end of deals they took out 2-years ago. Unlike their predecessors, they now find themselves facing far higher repayments, as those lenders who had guarantees that their standard variable rates would be no more than 2% over the Bank Base Rate, have now removed them.
Collins, added: “These guarantees have now been abolished in favour of “managed rates” which means that the lender can set them at whatever levels they wish. These “managed rates” are another reason why rates that track the bank rate for the term of the mortgage have become increasingly popular.”
Collins said that with more and more uncertainty in the market, shorter term deals were proving less popular, as future restrictions in credit availability, tightened lending criteria, potential falls in property prices, poor job security, all mean that clients could no longer be sure of being able to pick up another low deal when their current one ends.
“This is driving more borrowers towards either term trackers or longer term fixed rates,” he said.
“Throughout the past 18 months the attractiveness of term trackers to borrowers has increased, particularly when the margin between these and 5-year fixed rates hit almost 2%. With the threat of any imminent rise in the bank rate still far in the distance, the margin has narrowed to the point where some borrowers are happy to pay the relatively small premium for 5-year payment security.
“However there is one other product that has increased in popularity every month since its launch, which is the 5 -year hybrid “Golden Hello” product. This innovative deal combines a low tracker pay rate in the first two years of the loan, followed by the security of the final three years being on a very competitive fixed rate.
“With many economists saying that the bank rate is unlikely to move very far, if at all, in the next two years, it is the ideal product for the uncertain times we find ourselves in.
“Last month saw just over 40% of John Charcol cases on either the Hybrid or a term tracker. Between the innovative Hybrid and the longer term competitiveness of the term trackers, has the 2-year market much favoured in the past, had it’s day? For now, quite possibly.”