Fixed rate mortgages more popular than ever

The threat of higher interest rates led a record number of opting for a fixed rate mortgage loan, according the Council of Mortgage Lenders (CML). In fact, 85% of first time buyers chose a fixed rate deal in January - the highest figure on record - and just over 70% of home movers also decided on a fixed rate product.

CML Director General Michael Coogan said, "Increasing numbers of people - especially first time buyers - are opting for a fixed rate mortgage. Each month it seems that the prospect of another interest rate rise is balanced on a knife edge. More and more borrowers are protecting themselves against this risk and choosing the certainty of fixing their monthly mortgage payments, which allows them to plan ahead with confidence."

The CML believes it is encouraging that increasing numbers of first time buyers are locking into the payment certainty a fixed rate mortgage provides, as they are the group that are more financially stretched and may suffer most if interest rates go up. Overall, fixed rate mortgages accounted for 72% of all new loans in January - the highest proportion since January 2006 - up from 69% in December.

Despite recent base rate increases, the pricing of fixed rate loans continued to remain attractive compared to variable rate deals. The average interest rate of a fixed rate loan in January was 5.27%, up from 5.23% in December, compared to the average interest rate of a discounted variable-rate product which reached 5.54% up from 5.36% in December.

The CML survey also shows an 11% seasonal fall in the number of loans for house purchase and remortgaging taken out in January - 162,300 loans, down from 182,300 in December. But, this was still 6% higher than the 153,600 loans taken out in January 2006.

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