Rise in number of fixed rate mortgage applications

Posted: 18 Sep 2006 11:58:22 GMT

More and more people in Britain are opting for fixed rate mortgages as interest rates rise.

The decision last month by the Bank of England's Monetary Policy Committee (MPC) has resulted in a sharp increase in the number of applications for fixed rate mortgages.

The Bank opted to hold the cost of borrowing steady at 4.75 per cent this month following August's quarter point increase but analysts are widely predicting a further rise by the end of 2006.

A number of lenders are launching new fixed rate products, including a two-year fixed rate offset mortgage from Scottish Widows aimed at providing homeowners with greater security and a new 20-year fixed rate mortgage from Newcastle Building Society.

With a further rate hike predicted for November to counter recent rises in the UK housing market, more people are opting for the peace of mind offered by fixed rate mortgages.

A quarter point rise in the base rate by the end of the year will add over £50 to monthly repayments for many homeowners.

However, economists are expecting interest rates to fall again at some point next year and those opting for a fixed rate home loan will not be able to take advantage of the lower cost of borrowing.

Fixed rate mortgages are ideal for those who need to know what they will be paying out each month, while those with more financial flexibility should examine the potential savings offered by variable rate products.

Concerns have been raised about the possible effects of steep house prices, high levels of consumer debt and interest rate increases on the numbers of repossessions in the UK. Some experts have suggested that levels similar to those reached in the early 1990s could be the outcome.

The Council of Mortgage Lenders forecasts that the number of repossessions will soar from 10,250 in 2005 to 12,000 by 2006, though this will remain well below the 43,890 repossessions recorded in 1990.

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