More buyers choose fixed-rate mortgages

According to the Council of Mortgage Lenders (CML) more people taking out mortgages than ever before chose a fixed-rate mortgage to finance their purchase of a home in January. The apparent reason for this is worry that interest rates will go up again, with the effect that payments on variable-rate mortgages will go up as well.

The CML says that 85 percent of first-time home buyers chose a fixed-rate mortgage, while 70 percent of those moving from one house to another did so. The average interest rate on the fixed-rate mortgages was at 5.27 percent.

The choice of more buyers to take a fixed-rate mortgage comes at a time when house prices continue to rise. The Communities and Local Government Department (DCLG) said on Monday that house price inflation was up to 10.9 percent in January, sending the average price of a house in the UK up to £205,286.

The continuing gains in house prices could start to slow soon, however. A new report from the Royal Institution of Chartered Surveyors said that the number of surveyors saying that house prices were up in the three months up to February was down to 24. The number was at 28 in the previous three months. Still, the February number was double the long-term average of 12, which supports figures from Nationwide and Halifax (LSE: HBOS) that show house price inflation still strong.

Even so, the number of inquiries from new buyers has dropped to -19, from -6. This is the lowest level since October 2004 and is seen as evidence that the housing market will begin to cool down in the next few months. Still, some analysts think that as long as house supplies remain tight, prices will continue to rise.

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