Medium-term fixes gain popularity

Moneysupermarket.com, the price comparison website, has reported an increase in the take-up of medium-term (three to five year) fixed-rate mortgages.

Five base-rate rises since August 2006 have left many homebuyers searching for security, despite forecasts of a cut in interest rates before the end of the year.

Louise Cuming, head of mortgages at moneysupermarket.com, believes that the trend “supports the lack of confidence with interest rates”.

In recent years, two-year fixed-rate products have seen the greatest uptake, mainly because lenders can offer low rates over this period.

However, the latest figures show that 27% of those opting for fixed-rate loans are signing up for three to five-year fixes, compared with 21% taking out one or two-year agreements.

Interest rates for medium-term fixed-rate mortgages are around 6% and first-time buyers in particular are valuing the security they offer.

In addition, similar arrangement fees and early repayment charges apply to two and five-year deals.

Some lenders are keen to promote loyalty, for example, the Britannia Building Society is offering a five-year fixed rate of 5.39%, with a £999 arrangement fee.

Borrowers are still reluctant to enter into long-term fixed-rate loans (over 10 years).

There are currently around 200 available and the Government is keen to promote them, as it believes longer lending agreements could help stabilise the housing market.

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