Fixed rate mortgages more popular

In an announcement made earlier today, the Council of Mortgage Lenders has revealed that fixed rate mortgages became more popular in April, suggesting that borrowers are looking for security over future mortgage payments rather than simply the cheapest rate. In March, 54% of borrowers chose a fixed rate product, but by April this figure had increased to 59%, which is the largest propertion since December last year.

In addition, the figures released by the CML indicated that difficulties in the market would continue for some time. Liquidty problems and sluggish monet markets mean that many lenders have tightened criteria, and the average first time buyer now needs to put down a deposit of 13%, the highest level for over three years.

Some potentially good news was that there was a monthly increase in lending volumes in April, although activity remains weaker than a year ago. Gross lending increased by 8% in April to £26.1 billion, from £24.1 billion in March, after two consecutive months of decline. This was 5% down from April 2007, but this annual rate of decline was lower than in recent months. However, mortgages for home purchases of all types are still over 35% lower than the same period last year.

CML director general, Michael Coogan commented,

"Monthly house purchase lending volumes continue to be lower than last year’s levels and there will be a further weakening in coming months as recent approvals data has shown.

"The squeeze on mortgage funding has led many lenders to tighten their lending criteria. While tighter criteria make it more difficult for some borrowers to obtain a mortgage, they also reduce risk in a slower housing market.

"There has been a resurgence of fixed-rate lending as borrowers are seeking certainty. This trend is likely to continue as the anticipation of future Bank base rate cuts has diminished.

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