Variable mortgages more popular than fixed rateConsumers feel interest rates may have peaked

18 August 2007

More homeowners are now opting for variable rate mortgages than fixed rate ones as consumers speculate that interest rates may have peaked, figures showed today.

Variable rate mortgages accounted for 55 per cent of loans taken out during July, the first time they have overtaken fixed rate mortgages in popularity since October last year, according to Hamptons International Mortgages.

The group, which analysed loans taken out by its customers during the month, said only 45 per cent of people opted for a fixed rate loan in July, with two-year deals the most popular.

Two-year deals

But even these have seen a sharp drop in popularity in recent months, with just 36 per cent of people taking out a mortgage during July opting for a two-year fixed rate deal, down from 55 per cent in January.

By contrast the number of people taking out two-year variable rate mortgages has more than doubled from just 22 per cent in January to 46 per cent now.

The group attributed the shift in consumers' preferences to rising interest rates, with many people now hoping the cost of borrowing had peaked.

It added that most fixed rate deals had also factored in further interest rate rises, making them more expensive than they had been in the past.

Borrowing psychology

Jonathan Cornell, technical director of Hamptons Mortgages, said: 'The reversal in borrowing psychology is interesting and it appears that even borrowers believe interest rates must have reached their peak.

'Many will now no longer wish to lock themselves into fixed-rate deals which have every possibility of decreasing over the coming years.'

The group also found that for the first time in a year exit fees charged by lenders had fallen, while many lenders had scrapped the charges for new customers altogether.

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