Paragon: 5-year fix is the sweet spot
Paragon’s Financial Adviser Confidence Tracking Index revealed that in quarter four 2014 54.1% of borrowers went for 2-year fixes, 24.3% favoured 5-year fixes and 16.7% took out a 3-year fix.
But Heron said: “In the current market the 5-year fix is the sweet spot.
“In the last year we have seen increased demand for longer-term fixes and that makes sense in the context of a market which expects base rate increases.
“A 2-year fix offers you limited protection against those increases.”
Fixed rate mortgages have grown more popular than trackers since 2010, with 85% of intermediaries recommending a fixed rate over a variable rate in the residential and buy-to-let markets in December.
In the fourth quarter of 2014 81.6% of borrowers took out fixed rate products.
Few borrowers are favouring 10-year fixes however, as Paragon found that just 1.8% took out a fixed rate deal with a term over 5-years in the fourth quarter.
Heron added: “There’s been no real drift yet to 10-year fixes.
“There isn’t exactly a large choice of 10-year fixed rate products out there.
“I think that landlords and consumers are reluctant to tie their rate up for 10 years because of volatility in the markets.”
The Council of Mortgage Lenders revealed that the value of buy-to-let loans increased by 32% in 2014 from the year before to stand at £27.4bn.
But Heron predicts next year’s total to stand at around £33bn, and said: “The rate of growth will reduce but the quantum of increase will be maintained.”