Homeowners opt for fixed-rates

Research from Legal & General (L&G) indicates that more homeowners are opting for fixed-rate mortgages.

The insurer’s Mortgage Purchase Index for the first quarter of 2009 shows 72% of residential borrowers choosing a fix, compared to 65% in the last three months of 2008.

Buy-to-let borrowers followed the trend with 68% of property investors choosing fixed-rate deals in the first three months of 2009, compared to 43% in the final quarter of 2008.

The findings indicate that borrowers are not expecting further cuts in the Bank of England’s base rate, currently at a record low 0.5%.

In addition, fixed rates are falling, with the average cost of a two-year deal down to 4.78%, from 5.90% at the end of last year.

For a three-year fix the average rate now stands at 5.41%, down from 6.30%.

L&G’s director of housing, Stephen Smith, comments: “Fixed-rate pricing has only really stared to come down in the past few months, and even then only for those borrowers with a hefty deposit … however, fixed rates are very much back in favour, partly because lenders have been increasing the margins on their new tracker mortgages.”

In January, Moneysupermarket.com warned that tracker loans should be seen as “handle with care” mortgages because the base rate will inevitably rise at some point.

With the base rate at 0.5%, lenders can offer attractive rates even with today’s higher margins but according to the price comparison website, borrowers considering a tracker need to ensure they can afford higher repayments in the future.

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