Brits opt for fixed mortgage deals despite rate increases

Although the cost of fixing a mortgage has jumped up considerably throughout 2008, Brits would still rather choose a fixed rate mortgage deal over a variable rate in order to gain some financial stability from knowing how much their mortgage payments would be each month.

Lenders have changed their interest rates on mortgages almost weekly since 2008 began, and most have hiked their arrangement fees considerably. However, recent months have seen a huge increase in the number of homeowners who opted for a fixed rate mortgage, particularly for a two or three-year deal.

With food and petrol prices continually on the rise and energy bills nearly doubled compared to 2006, consumers strongly feel the squeeze of the credit crunch; it is not wholly unexpected that many major mortgage lenders have reported a rise in the number of people who are going into mortgage arrears.

In the current economic climate, it is altogether not surprising – while slightly worrying – that the British public would rather opt for the security of a fixed mortgage deal than a variable mortgage product, which often provides much better value. However, it is a choice which reflects the pessimism of the British with regard to the current economic situation and highlights their fears of rising inflation and financial instability, while underlining the fact that generally consumer confidence is very low.

Overall mortgage lending is down considerably from 2007’s record high, with lending in April 2008 down almost a quarter on the previous year’s corresponding period. There has been a shift towards the remortgage market as people choose to stay put and not move house until the mortgage market has recovered.

This change in the mortgage lending market does not come as a shock as most products with high LTVs have been withdrawn, and people are being forced to scrape up bigger deposits in order to get a mortgage in the first place.

Compared to a considerable decline in first time buyer mortgages in these increasingly difficult market conditions, remortgage approvals have so far remained stable and have met the forecasts made earlier in the year, which shows that the market is resilient despite the recent rate increases.

With mortgages harder to obtain, interest rates and the cost of living bound to increase even further, the Council of Mortgage Lenders (CML) and several major banks have predicted an unprecedented slump in property transactions for this year while Halifax says it expects house prices to drop by an average of ?18,000.

Daniel Collins writes on a number of topics on behalf of a digital marketing agency and a variety of clients. As such, this article is to be considered a professional piece with business interests in mind.