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Two in three choosing fixed rate

Sarah Davidson

December 16, 2010

The data showed the percentage of people choosing fixed rate over variable rate mortgages (purchase and remortgage) increased for the fourth month in a row, rising from 63.6% in October to 65.7% in November.

This compares with just 46.3% of applicants choosing fixed rate deals back in January 2010.

The number of people choosing fixed rate mortgages is significantly below the 90% who chose fixed rate over variable rate products back in May 2009, at the end of the raft of interest rate cuts by the Bank of England, when rates fell to an historic low of 0.5%.

MAB said with the mortgage landscape in 2011 predicted to be just as tough as 2010, this sentiment is weighing heavily on mortgage applicants’ minds. Irrespective of the general view that interest rates are likely to remain low for some time, many applicants probably want the peace of mind, as we move into a New Year, of knowing they are protected from future market uncertainties.

The availability of mortgage finance remains tight with average loan to values on purchase mortgages dropping slightly from 70.4% in October to 70.1% in November.

Average purchase LTVs have not gone above 71% all year while the average loan size for purchase mortgage applications increased from £123,982 in October to £126,162 in November, a rise of 1.8%.

The average deposit put down by a purchase mortgage applicant in November was £37,722 compared to £36,699 in October.

In terms of total mortgage applications (purchases and remortgages), activity was up 23.4% for the year to date compared to the same period in 2009. However, mortgage activity, month-to-month, continues to be unpredictable, as a tough year for the mortgage market as a whole draws to a close.

November 2010 saw purchase mortgage applications increase by 4.6% compared to October 2010. This follows an 11.4% fall in October compared to September 2010 and a 14% rise in September compared to August 2010.

Purchase mortgage applications in November 2010 were 1% down on applications in Nov 2009.

Remortgage activity fell by 6.5% in November compared to October. The average LTV on remortgage applications rose only marginally from 55% in October to 55.1% in November, while the average remortgage loan size increased by a substantial 27.5% in November to £166,899 compared to £130,913 the previous month.

Brian Murphy, head of lending at Mortgage Advice Bureau, said: “With the almost month-on-month reduction in fixed rate pricing during 2010, it is no surprise to see almost two thirds of borrowers have gravitated towards fixed rates.

“Consumer confidence is relatively low due to still uncertain economic and employment conditions and therefore borrowers are increasingly opting for the security that fixed rates offer.

“The purchase market recorded a slightly surprising but welcome small increase in activity during November over October. Having witnessed a fall in October from September followed by last month’s increase this reflects the slightly disjointed nature of the current market as generally at this time of year purchase market transactional numbers would be falling month on month. With the Christmas period almost upon us we would expect to see activity levels retreat a little further during December.

“Although dropping back a little from the relative high point of October, remortgage activity still accounted for almost one in three transactions providing further evidence that more borrowers are seriously now re-entering this sector of the market.

“With mortgage product numbers increasing slightly again in November to more than 5,100 deals available to the typical mortgage intermediary (another post credit crunch high), and rates remaining at exceptionally competitive levels, borrowers both buying property and refinancing existing deals appear to be taking advantage of current pricing.

“Once again, average 5-year fixed rate deals have fallen slightly to 5.29% from 5.32% last month and 2-year deals also edged down a little further to 4.37% from 4.48% the previous month. Trackers also continue to offer great value with the average 2-year tracker down to 3.46% and with products that allow borrowers who choose to take advantage of lower tracker rates in the short term but with the facility to switch into a fixed rate without penalty if rates do start to edge up, these borrowers have the best of both worlds.”

REGIONAL MORTGAGE REVIEW

Three-quarters (75.2%) of applicants in the South West chose fixed over variable rate purchase mortgages in November, compared with just 51.1% of applicants in Wales choosing fixed rate deals.

The average LTV on purchase mortgages in November was highest in Yorkshire & Humber (76.6%) and lowest in the North West (65.3%), while six out of nine areas saw average loan sizes fall in November compared to October.

Purchase mortgage applications rose in six out of nine areas in November compared to October, with the South West (45.5%) experiencing the biggest increase. The North West saw an 8% fall in mortgage applications, compared to October.

For remortgages, 75.8% of borrowers in the South West chose fixed rate deals in November, compared to only 38.5% of borrowers in Wales. The average LTV on remortgage applications in November was highest in East Anglia (72%), and lowest in Wales (41.6%).

The North West (36.1%) saw the biggest fall in remortgage applications in November 2010 compared to October 2010, while Wales saw a surprising 85.7% increase in applications over the same period.

The oldest mortgage applicants in November were in the South West (40 years) and the youngest in the East Midlands (36 years).

LONDON MORTGAGE REVIEW

The average LTV on purchase mortgage applications in November was 63.7%, down from 69.5% in October, with the average loan size on purchase mortgages falling 4.2% from £281,322 in October to £269,527 in November.

In terms of the types of purchase mortgages, applications for fixed rate products jumped from 45.5% in October to 54.5% in November, suggesting that any confidence among buyers, that interest rates are staying low for the foreseeable future, might be waning.

Total mortgage applications (purchase and remortgage) were up 36.4% in November 2010 compared to October 2010.

On the remortgage side, the average LTV on remortgage applications in November was 54% compared to 56.4% in October, while the average loan size rose from to £287,521 in October to £375,149 in November, an increase of 30.5%.

The average age of a purchase mortgage applicant in London in November was 39 years compared to 37 years 9 months the previous month.

Andrew Montlake, director at London-based Coreco Group, said: “While November saw a welcome rise in mortgage transactions in London, no-one is under any illusions that this was caused by a slightly delayed and muted pre-Christmas rush and remortgage borrowers keen to take advantage of some exceptional product offerings.

“However, with many estate agents already reporting that the end of year lull is under way, December and January could prove to be slower even than last year.

“Next year will no doubt see a marked increase in regional differences and the London market has always proved to be buoyant. While there may be a slow start to 2011, the demand for properties in London is unlikely to wane further, propped up in part by a continuing flow of overseas cash.

“The key issue remains the availability of finance, especially for first time buyers, and with this unlikely to change in the near future, 2011 looks like it will be a very good year to be a buy-to-let landlord as rents continue to strengthen and mortgage lenders look to take advantage of the higher margins available in this sector of the market.

“Fixed rate products continue to hold on to their new found popularity as the expectation of future rate rises gets ever closer and remortgage customers continue to take advantage of some exceptional fixed rate offerings.”


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