Borrowers Continue To Avoid Fixed Rates On Homeowner Loans
Around March and April time earlier this year and even into the summer months, the majority of loans taken out by borrowers for the purpose of home purchase were based on a fixed rate deal.
This was largely due to the fact that the Bank of England base rate of interest had reached the lowest level it had ever attained in the Bank’s history. As a result of this, many people feared that interest rates would increase sharply once again by the end of the year and therefore locked themselves into a fixed rate loan deal in order to avoid any rate rises.
This course of action would have been fine, if rates had actually increased, but as it now looks as though interest rates are to remain low for some considerable time to come, borrowers are moving away from the fixed rate loan options, as these are often more expensive than standard variable rate or tracker rate loan deals. In June this year, 83 per cent of home owner loans were taken out on a fixed rate basis, but by November this figure had fallen to less than 20 per cent.
Ray Boulger of John Charcoal said “The cost of both fixed and variable rates fell in November as a result of some increased competition from lenders. Although fixed rates fell a little further than trackers, on most interest rate forecasts a good tracker will cost less than a comparable fixed rate over at least the next two to three years.
Indeed only last week Roger Bootle of Capital Economics, forecast that bank rate would not exceed 1 per cent for the next five years. However, in this uncertain world, things can change quickly and so we have advised many of our clients to take a lifetime tracker rate with low and only short term early repayment charges, so that they are in a position to switch quickly to a fixed rate if the interest rate outlook changes.”
