The fixed rate mortgage comes of age

The fixed rate mortgage market has recently 'come of age' - it's been just over 21 years since the launch of the fixed rate mortgage.

Halifax helped to introduce a fixed rate culture by launching its first product in November 1988, with other products coming onto the market throughout 1989. By 2009, according to CML figures, 68 per cent of new mortgage lending was on fixed rate products.

Before the arrival of the fixed rate mortgage, irrespective of their individual circumstances, borrowers had little or no choice in their mortgage rate. In the late eighties, interest rates rose to 13%, the introduction of a new product revolutionized the market - introducing a level of stability, choice and competition that has become customary for today's borrowers.

Fixed rate mortgages were first introduced in the late Eighties in a variety of forms, with minimal take up. Halifax helped to introduce a fixed rate of interest culture when it launched its first fixed rate mortgage in 1988. By February 1989, there were 12 fixed rate products from 12 lenders, compared to over 1300 fixed rates from 69 lenders today. Over 1500 fixed rate products were available at the peak of the market in 2007.

In 1989 the Bank of England bank rate was at 13%, compared to today's historic low of 0.50%

The maturing market has developed to offer consumers a wider range of products. In 1989, there was a difference of 1.05% between the highest available fixed rate and the lowest rate. That compares to 4.84% in today's market.

In the early months of the fixed rate mortgage, terms of two years were the standard option, with just three or five year options occasionally available. As it has become an established product option, terms from 1 to 25 years have been available, and borrowers in today's market can fix for up to 10 years.

The average fixed rate in February 1989 stood at 12.55%. In 2007, when the availability of fixed products was at an all time high, this was at 6.33% - compared to 5.38% in 2010.

The first fixed rate mortgage offered a rate of 12.75% when it was launched by Halifax in late 1988. The highest ever Halifax fixed rate stood at 13.85%, launched in 1990, compared to the lowest ever fixed rate at 1.99% in February 2007.

Fixed rates have accounted for the majority of new mortgages in each of the past five years, up to 68 per cent in 2009.

The popularity of fixed rate mortgages traditionally mirrors the move in interest rates. The percentage of fixed rate mortgages typically increases when the official Bank Rate is rising. 2009 was an exception when, despite falling interest rates, an increasing proportion of new borrowers took a fixed rate product. This was because many thought that variables rates were as low as they could go and so looked to protect themselves against future rate rises.

To mark the coming of age of the fixed rate mortgage, Halifax has launched a new 21 month fixed rate products allowing borrowers to guarantee their mortgage payments.

Stephen Noakes, mortgages commercial director at Halifax, commented: "In today's market, borrowers can select their product based on a number of factors - including the term, type and rate. It's easy for us to take that level of choice for granted, but before the introduction of fixed rates, borrowers simply didn't have access to the same options. Ever since their introduction 21 years ago, fixed rate mortgages have been fundamental for homeowners looking for certainty and stability in managing their household expenses, and this is an important milestone to mark."