Variable mortgages popular prior to interest rate rise

Posted: 08 Aug 2006 11:28:16 GMT

Variable rate mortgages were increasing in popularity in the build up to the Bank of England's decision to raise interest rates, figures show.

Research from Mortgages Direct shows that before the Monetary Policy Committee's (MPC) decision to raise interest rates from 4.5 per cent to 4.75 per cent, variable mortgage applications were four times higher than they had been in the same period last year.

The health and stability of the market in addition to the period of permanence in the MPC's rate announcements had installed a great deal of buyer confidence in taking on a variable rate mortgage as supposed to a fixed rate.

Peter Gladdy, director of Mortgages Direct, stated: "With record numbers of borrowers opting for variable mortgages, many homeowners will obviously be very concerned about the latest base rate rise. However, variable mortgages are still competitive compared to fixed rate deals. Although, any further rise in interest rates will certainly pose a serious problem for many homeowners.

"Many borrowers went for variable mortgages, prior to the Bank of England's decision last week, with the understanding that rates will only increase by 0.25 per cent for the foreseeable future. It will be interesting to see how popular variable mortgages remain, now that the rates have increased and may increase still further."

In the region of 30 per cent of homebuyers opted for a variable rate when they applied for a mortgage in June this year, up from 26 per cent in May. During this time analysts were divided on whether the MPC would raise rates or not. Many were surprised by the decision and it has been met with criticism in certain areas that the change was made too soon.

Interest rate increases have been seen as part of a global trend with the US Fed and the Eurozone all increasing rates.



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