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Fixed rate mortgages become more popular

Fixed rate mortgage deals are becoming more and more popular as eight in ten mortgage shoppers are considering the option.

This month’s Experian Credit Barometer, out yesterday (June 20), showed May saw 81 per cent of searches directed at fixed rates, compared with 72 per cent in March and 77 per cent in April.

In comparison, interest for variable repayment rates slowed with only 10 per cent searching for a tracker and 9 per cent for a variable mortgage in the month.

Last year, The Bank of England raised interest rates for the first time in 10 years while governor Mark Carney has previously said interest rates were likely to rise twice more over the next three years.

The possibility of rate rises could mean homeowners increasingly value the stability that longer term fixed rate mortgages provide.

The Bank yesterday (June 20) announced it was holding the base rate at 0.75 per cent, which could encourage more savers to lock in the low rates while they can.

Amir Goshtai, managing director of Experian Marketplace & Affinity, said: “People want certainty when it comes to their finances, especially in times of such economic uncertainty.

“Rising popularity in fixed term mortgages and high searches for loans for debt consolidation tell us borrowers are looking for low, fixed monthly payments to effectively manage their outgoings and keep control of their finances.

“Interest rates for mortgages and loans are relatively low so now is a good time for borrowers to shop around and seriously consider locking-in their monthly repayments.”

It emerged in February that the number of fixed rate residential mortgages available has reached a 12-year high, as 5,214 fixed rates were available on the market compared with 4,570 in the previous year.

Daniel White director of White Financial Services said two-year rates have always been a popular choice because they provide “the flexibility of allowing a client to review over a shorter term”.

However, he added it is “the longer term security in a period of uncertainty” that is pushing more mortgage shoppers towards longer term fixed rates.

Jonathan Harris of mortgage broker Anderson Harris, said five-year deals were proving particularly popular at the moment.

He said: “The attraction is they give protection from potential rises for the medium term, without locking the borrower in for too long.”

Providers have also increasingly been introducing 10 year plans in order to meet growing demand for this option.

Research from consumer champion Which out earlier this year showed the number of providers offering such a mortgage had doubled in the year to January, to 14 providers.

For example, Santander was the latest lender to add a long-term fixed rate mortgage to its range with the launch of a ten-year deal in May this year.

By Eveline Vouillemin

Source: FT Adviser

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UK buyers need more help to find cheaper mortgage deals, says FCA

Plans to make it easier for mortgage borrowers to shop around have been proposed by the City regulator, after it found nearly one in three people fail to find the cheapest deal.

The Financial Conduct Authority (FCA) said these people could have saved £550 per year with a lower-priced deal. It is also exploring ways to help “mortgage prisoners” – longstanding customers who are trapped in their existing deal – to switch.

Publishing its interim report into the mortgage market, the FCA said it had found that competition was working well for many people. But it also identified ways in which the market could work better.

Mortgage debt accounts for more than 80% of total UK household liabilities, so selecting a deal is one of the most important financial decisions consumers have to take, but it can be a difficult one to get right, the FCA said.

The regulator said that while there was little evidence that current arrangements between firms were leading to poor consumer outcomes, there was no easy way for people to be confident at an early stage of the mortgage products they qualify for.

This is a significant impediment to shopping around, and about 30% of customers fail to find the cheapest mortgage for them, it said. On average, these consumers were paying approximately £550 per year more over the introductory period of their mortgage compared with the cheaper product.

One approach could involve lenders making the necessary eligibility and other qualification criteria available to other market participants consistently at an earlier stage, the FCA suggested. This should help brokers and also create other opportunities for new online tools, it said.

The FCA also proposed making it easier for people to compare mortgage brokers, saying it intended to work with the broker sector to develop ways to compare deals.

The report said: “We found that on average a consumer’s choice of intermediary makes a difference to the eventual cost of their mortgage. In particular, we have observed links between more expensive mortgages and intermediaries that typically place business with fewer lenders. But there are few tools to help consumers choose an intermediary.”

Christopher Woolard, the FCA’s executive director of strategy and competition, said: “For many the market is working well with high levels of consumer engagement. However, we believe that things could work better with more innovative tools to help consumers.

“There are also a number of longstanding borrowers that have kept up to date with their mortgage repayments but are unable to get a new mortgage deal; we want to explore ways that we, and the industry, can help them.”

The FCA also outlined how “mortgage prisoners” could be better helped, many of whom took out interest-only deals before the financial crisis. Stricter lending practices since the crisis have made it harder for these customers to find a cheaper mortgage.

The regulator suggested there could be an industry-wide agreement for lenders to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up to date with their payments.

The FCA will consult on the findings and proposed remedies, with a final report due around the end of the year.

Source: The Guardian