Two thirds of borrowers are now choosing the security of a fixed rate mortgage.
Latest figures released by the Council of Mortgage Lenders (CML) show that in May 62% of borrowers opted for a fixed rate mortgage compared to just 22% who selected a tracker mortgage.
Fixed rates are becoming more popular, at the same time last year 46% of mortgages were arranged on fixed rate. Conversely the popularity of tracker mortgages is receding, in May 2010 36% of deals were arranged on this basis.
Fixed rates fall
Two factors could be behind the increasing popularity of fixed rate mortgages.
Firstly, until the surprise slowing of inflation earlier this week, borrowers may have feared a rise in interest rates as the Bank of England’s Monetary Policy Committee (MPC) tried to bring inflation under control. This may have meant that borrowers moving home, which generally means taking on a larger amount of debt, opted for the security of a fixed rate.
Secondly fixed rate mortgages are simply becoming cheaper. Accord Mortgages said this week it would be reducing the interest rate on its fixed rate mortgages by up to 0.3%. For those borrowers with a 25% deposit Accord Mortgages are now offering a two year fixed rate at 2.79% and for people who want a longer term fixed rate of five years, 3.84%.
The Halifax has also reduced the cost of its fixed rate mortgages recently.
The financial information service Moneyfacts said last month that the cost of fixed rate mortgages was gradually falling, however it also said that the interest rate payable on a tracker mortgage was at its lowest level since 1988.
Despite falling interest rates the availability of mortgage finance is still a concern for many.
The best deals are reserved for borrowers with the largest deposits and as lending criteria remain tight, for many first time buyers it is still a struggle to find a bank or building society willing to give them a mortgage.
Even if a first time buyer can scrape together the deposit necessary they will have to pay a higher rate of interest than a borrower with more equity, especially if they want the security of a longer term fixed rate.