More savvy borrowers fix as mortgage rates start to rise

The popularity of fixed mortgage rates has reached new heights as 96 per cent of homebuyers opted to fix during September for a second successive month: the first time this has happened since the Bank of England base rate was lowered to 0.5 per cent in March 2009, according to the National Mortgage Index from Mortgage Advice Bureau – the UK’s best known broker brand.

The data suggests borrowers are increasingly motivated to lock into fixed rates while mortgage pricing remains low. In comparison, just 91 per cent of homebuyers fixed between February and April this year, and April 2014 remains the only other time where 96 per cent of homebuyers have done so.

Savvy homeowners are also looking to secure their rates in greater numbers, with 92 per cent of remortgage customers fixing their rates in both August and September. This is the highest proportion recorded since June 2014 when 93 per cent of remortgaging homeowners opted to fix. The intervening period saw fixed rate popularity for remortgages fall as low as 85 per cent in December 2014.

Graph 1: Increasing numbers of borrowers opt to fix their mortgage rates

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Mortgage rates climb in September

The rush to fix mortgage rates came as Moneyfacts Average Mortgage Rate for September showed that average mortgage pricing across two year fixed, five year fixed and two year tracker rates increased.

The average two year fixed rate rose from 2.68 per cent in August to 2.72 per cent in September, marking the first rise after 12 months of consecutive record lows. Five year fixed rates also rose for the first time since August 2014, while two year trackers rose for the second successive month.

In contrast, the average three year fixed rate reached a new low of 3.10 per cent in September, down from 3.11 per cent in August and 3.71 per cent a year ago.

Table 1: Mortgage rates rise in September – excluding three year fixes

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Despite rising between August and September, two year fixed pricing remains the most improved over the last year. Borrowers looking at short-term two year fixed rates in September will have found the average rate more than one percent lower than it was 12 months before – allowing them to make significant savings in their repayments.

For example, a homebuyer with September 2015’s average loan of £164,525 would save £93 a month or £2,226 over the whole fixed term by taking out a two year fixed rate at the latest 2.72 per cent average rate, compared with September 2014’s average of 3.78 per cent.

Table 2: Rate cuts over the last year still save the average borrowers over £2,000 on a two year fix

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Average mortgage rates were also at least 60bps lower over the year across three year fixed, five year fixed and two year tracker rates, showing conditions remain favourable for borrowers.

The Index also showed that the total number of mortgage products on the market reached another new high in September with 16,465 products recorded. This was a 4 per cent rise from August and an increase of 36 per cent over the year from 12,069 in September 2014, as competition continues to intensify.

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“Sooner or later, the predictions of an interest rate rise are going to become a reality and some lenders have started to act ahead of this to ensure they are not short changed. Borrowers should not be too alarmed by September’s jump in pricing, as there was only a slight increase and three year fixed rates continued to fall. All the same, it is a timely wake-up call that these rates are not here to stay forever.

“Opting for a fixed rate could be a wise step to safeguard your repayments for the future, and the longer you fix for, the longer you are protected. Affordability checks are there to ensure there is plenty of room left in people’s budgets to account for higher repayments in future, but anyone in a position to buy or remortgage should consider making the most of the competitive pricing and thousands of products currently available. There are clear signs in the latest data that an increasing number of borrowers are cottoning onto the trend.”