Surge in fixed-rate mortgage deals

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Published: Friday 31st October 2014 by The News Editor

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Mortgage lenders are flooding the market with more fixed-rate products in attempts to lock in home-owners who may be tempted to switch to one of their rivals in the coming months, a financial website has reported.

By the middle of this week, there were 2,675 fixed-rate mortgages on the market, which is an increase of 297 deals, or 12.5%, since the start of September, according to Moneyfacts.co.uk.

It suggested that lenders are giving themselves a mortgage make-over as they are bearing in mind the danger that their existing customers could be wooed by another bank or building society in the coming months.

Some of these customers may be starting to think about remortgaging in order to shelter from expected increases to the Bank of England base rate and keep their borrowing costs down.

While the vast majority of new mortgages being taken out are fixed-rate deals which cushion borrowers against any immediate impact of the base rate rising, around two-thirds of outstanding mortgage balances are held by people who are on a standard variable rate (SVR), according to industry estimates.

Some mortgage holders may struggle to switch, perhaps because of a lack of equity or tougher borrowing requirements.

But b rokers anticipate seeing an upswing in people looking to jump off their variable deal amid expectations that the Bank of England base rate will climb from its historic 0.5% low at some point next year. Lenders set SVRs themselves and there are a number of factors they take into account when doing this.

A string of major lenders have slashed the rates on their mortgage ranges in recent weeks, with several saying some of these rates are the lowest they have ever offered.

Moneyfacts said that the average two-year fixed rate on the market has fallen from 3.52% in August to 3.27%.

In contrast to the surge in fixed deals coming onto the market, just 10 more variable products have been added since the start of September, which Moneyfacts said shows that “lenders are reluctant to add to a variable book that does not lock borrowers in”.

Sylvia Waycot, editor at Moneyfacts.co.uk, said: “The remortgage market will witness a considerable boost in activity when the base rate changes.

“Many borrowers will look for a fixed rate to shelter from further increases, and many will look at starting a new relationship with another lender.

“This is what is driving lenders to start planning now to protect their lending books and their market share by enticing their SVR borrowers to stay put.”

She said that in some cases “lenders have made more changes in recent months than they have done in the last few years. They’re getting ready for the inevitable increase to base rate by ensuring their fixed mortgages look attractive when borrowers want to move.”

Ms Waycot predicted that further-fixed rate reductions are likely as the market readies itself for expected base rate changes.

A recent Bank of England report showed that mortgage availability shrank back over the summer, just after stricter industry-wide mortgage lending rules were introduced.

There have also been suggestions that the recent mortgage price war is in part due to lenders trying to catch up in order to meet targets after the disruption that was caused by the Mortgage Market Review (MMR) rules bedding in earlier this year.

According to Moneyfacts’ “best buy” tables, Skipton Building Society is offering a five-year fix at 2.65% for people with a 50% deposit or equity. The Skipton deal carries a fee of £1,995. West Bromwich Building Society is offering a five-year fix for someone with a 35% deposit at 2.79%, with a fee of £599.

HSBC is offering a two-year fix at 1.49% for people with a 40% deposit, with a fee of £1,999, while Yorkshire Building Society is also offering a two-year fixed deal at 1.57%, with a £975 fee, for people with a 35% deposit.

Published: Friday 31st October 2014 by The News Editor

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