Fixed rates become less popular than ever

The popularity of fixed rate mortgages declined even further in November, with only just over a fifth of John Charcol clients - 21.3% - choosing a fixed rate. This is five percentage points lower than the October figure and most clients who opted for a fixed rate took a 2 year fix, with nearly all the rest choosing a 5 year deal.  This is the smallest market share for fixed rates since October 2008 and continues the dramatic decline from their recent peak market share of 83.1% only 5 months ago in June, according to the John Charcol Index, the monthly mortgage activity monitor from John Charcol, the UK's leading independent mortgage adviser.

Ray Boulger of John Charcol comments, "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  the difference in the initial pay rates still assumes Bank Rate will increase more quickly than many economists predict and on most interest rate forecasts a good tracker will cost less more than a comparable fixed rate over at least the next 2-3 years. Indeed only last week Roger Bootle, Managing Director of Capital Economics, forecast that Bank Rate would not exceed 1% in the next 5 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. Although we don't expect longer term (say 5 years or more) fixed rates to fall much below the current best rates of just under 5%, it seems probable that rates around this level will be available for some time. Thus borrowers on a variable rate will probably be able to benefit from a tracker rate more than 2% below a comparable 5 year fix for quite a while before considering switching to a fixed rate.

Boulger continues, "There was a statistically irrelevant fall of 0.4% in the proportion of purchases last month, to 58.1%. This percentage has now been very stable for the last 4 months, with the figure moving within a very narrow band of 57.4% to 58.5%.  First Time Buyer (FTB) activity as a percentage of total purchases fell back to 10.7%, well down from last month's 15.3% but still slightly higher than September. For the last 6 months this figure has fluctuated between 10% and 15%."