Popularity of fixed-rate mortgages soars

Paragon Mortgages’ latest Financial Advisors Confidence Tracking (FACT) Index report has revealed that the preference for fixed-rate mortgages reached an all-time high in the first quarter of 2017.

The report, based on interviews with 200 mortgage intermediaries, found that 89% of the mortgages introduced between January and March 2017 were fixed-rate, up by 6% on the previous quarter and the highest number in the survey’s 20-year history. This is part of a long-term upward trend, which has increased especially sharply since the end of 2010 when fixed-rate and tracker mortgages accounted for 46% and 45% of all cases respectively.

While the number of fixed-rate mortgages has soared, in the same seven-year period tracker mortgages have fallen at almost exactly the same pace. In Q1 2017, they accounted for just 10% of mortgage business, the lowest ever level.

Two year fixed-rates are still the most popular type of product, despite a slight decline in Q1 2017, down to 48% from 53% in Q4 2016. Five year fixes, on the other hand, are rising in popularity, with an increase in Q1 of 3% to account for 34% of all mortgages. 

Following a period of disruption last year – not least when the extra 3% stamp duty surcharge on second homes was introduced in April – buy-to-let lending stabilised in the first quarter of 2017, making up 18% of all mortgages handled. Remortgaging, meanwhile, remained the most common type of borrowing. In buy-to-let lending terms, remortgaging accounted for 47% of all business, prolonging a strong upward trend since the third quarter of 2013. Lending to first-time landlords, by contrast, eased to 15%, maintaining a long-term decline from 27% in Q3 2013. 

“It’s clear to see that the benefit of certainty at such low rates is continuing to drive up the popularity of fixed rate mortgages – particularly five year fixed terms, which gained further ground in Q1 2017,” John Heron, Managing Director of Paragon Mortgages, said.

“The FACT Index gives Paragon a uniquely long-term view, and the ability to measure changing characteristics of the market, particularly in buy-to-let. The widening in favour of remortgages over purchase transactions suggests that supply to the PRS may be coming under pressure which in turn may lead to higher rents.”