Consumer confidence prompts increase in variable mortgages

Despite the base rate rising for the fifth time in a year to 5.75% in July, the percentage of borrowers opting for variable mortgages increased by 50%, demonstrating a growing belief that interest rates have peaked and house price growth will level off in the second half of the year.

The Spicerhaart Financial Services monthly mortgage survey reveals that although fixed rate products remained the most popular, with 86% of customers taking these out in July, the percentage of variable mortgages increased significantly from 9% to 14% of all deals.

Within the 14% of variable deals, the highest proportion since October 2006, 11% of borrowers chose mortgages that tracked the base rate, with 1.7% choosing a discount deal and 1.3% opting for other variable rates.

Steve Cox, Operations Director of Spicerhaart Financial Services, comments: “The increasing proportion of variable mortgages indicates that borrowers are starting to believe that interest rates have finally peaked, as inflation stabilises, and are likely to come back down again before the end of the year. With interest rates still historically low, homeowners and first time buyers, still confident in their financial security, are as keen as ever to move up the property ladder, even if this means borrowing slightly more.”

Fixed rate deals continued to do well, making up 86% of all mortgages in July. The shorter term two year products decreased by 5% from 60% in June to 55% in July. Three year deals and four year plus deals remained the same at 13% and 18% respectively.

The percentage of high loan to value mortgages rose for the sixth consecutive month, to a peak of 21% up from 19%. The level of first time buyers also increased slightly to 37%.

Steve Cox continues: “Perhaps surprisingly, shorter term fixed rates saw a slight slip in popularity last month. However, the majority of consumers are still opting for fixed rate deals to protect themselves against further rate rises.”