First-time buyers opt for fixed-deals as threat of interest rate rise looms

The prospect of higher interest rates has led a record number of first-time buyers to opt for a fixed-rate loan, according to data from the Council of Mortgage Lenders' monthly survey.

The data reveals that 85% of first-time buyers chose a fixed-rate deal in January - the highest figure on record - and just over 70% of home movers also decided on a fixed-rate product. It is encouraging that increasing numbers of first-time buyers are locking into the payment certainty a fixed-rate mortgage provides, as they are the group that are more financially stretched and may suffer most if interest rates go up. Overall, fixed-rate mortgages accounted for 72% of all new loans in January - the highest proportion since January 2006 - up from 69% in December.

The pricing of fixed-rate loans continued to remain attractive compared to variable-rate deals. The average interest rate of a fixed-rate loan in January was 5.27%, up from 5.23% in December, compared to the average interest rate of a discounted variable-rate product which reached 5.54% up from 5.36% in December.

The survey shows an 11% seasonal fall in the number of loans for house purchase and remortgaging taken out in January - 162,300 loans, down from 182,300 in December. But, this was still 6% higher than the 153,600 loans taken out in January 2006.

Commenting on today's data CML Director General Michael Coogan said: "Increasing numbers of people - especially first-time buyers - are opting for a fixed-rate mortgage. Each month it seems that the prospect of another interest rate rise is balanced on a knife edge. More and more borrowers are protecting themselves against this risk and choosing the certainty of fixing their monthly mortgage payments, which allows them to plan ahead with confidence".