Fixed rate mortgage take-ups rose in June, according to the Council of Mortgage Lenders. Almost 50 per cent of borrowers chose to take up the option, which freezes their monthly home repayments to a fixed sum.
The CML report explained that the rising figure was a result of interest rate changes: “Fixed rates had proved unpopular this year compared to the last several years due to an historic low bank rate with little prospect of the rate rising. But with fixed rate prices falling they are starting to find favour again”.
Fixed rate mortgages are appealing to borrowers because they provide them with the security of knowing their repayments won’t change. However, they may include additional security costs and high lender fees.
Standard variable rate and tracker mortgages fluctuate according to the Bank of England base rate – the historic low of the past few years has meant that borrowers on these types of mortgages have benefited from lower repayments but as the rate rises they will be forced to pay more.
The CML report also showed that mortgage lending has increased – 52,000 new loans were granted to home buyers in June, up by 19 per cent from the previous month and 14 per cent from the same period last year.
Economist at the firm Paul Samter said: “For the time being, the effects of government spending cuts have yet to make an impact on mortgage demand, and activity continues on its upward trajectory. But we still expect house purchase activity to be muted in the coming months. Both consumer demand and lending capacity remain distinctly difficult to call, especially in the light of the government’s austerity measures and their possible impact”.