Those taking out new mortgages overwhelmingly opted for fixed rates because they believe interest rates can’t possibly remain this low and because fixes are competitively priced.
In August, 78 per cent of new borrowers chose a fixed-rate mortgage compared with 59 per cent a month earlier. A further 14 per cent took out a home loan that tracks the Base Rate, compared with 28 per cent in August 2008 when rates were falling.
But while these numbers are encouraging, remortgaging has fallen out of fashion. Just 32,000 applications were approved in August, a fall of 22 per cent on July and 57 per cent down on August 2008. An extra 100,000 people every month coming to the end of a two or three-year fixed rate are simply moving onto their lender’s cheaper standard variable rate (SVR).
Not only are many SVRs lower than rates on new deals, there is no fee to pay nor early repayment charges, so the added benefit is that borrowers can switch to another deal at any time - when interest rates start to rise again, for example.
However, not all lenders have low SVRs so it could be expensive simply to assume this is the best option. It is worth checking with an independent mortgage broker such as SPF to see what else is on the market before deciding whether to stay on the SVR or not.