Almost two-thirds of borrowers expect interest rates to rise within the next year, despite reports that wider economic conditions could cause base rates to fall, according to the latest Monthly Remortgage Snapshot from LMS.
59% predict a rise at some point in the next 12 months, while 27% think this will be more than a year away, and 14% don’t expect a change at all.
Lenders may raise product rates to protect against economic turbulence, and this together with uncertainty in the economy as a whole could be behind the popularity of fixed term products.
95% of those who remortgaged in August opted for a fixed rate product. Only 3% of borrowers chose a variable or tracker rate mortgage.
Purchases of five-year fixes dropped from 50% to 48%, while there was a slight increase for two-year fixes which rose from 34% to 35%. These remain the most popular products, and LMS said it is yet to see the growing popularity of 10-year fixes cause a significant change in product purchasing levels, with the figure for August holding steady at 5%.
Nick Chadbourne, CEO of LMS, said: “With a significant peak in early redemption charge expiries on the horizon for October, we’re expecting a steady ramp up in remortgage activity over the next few months.
Volumes are already up month on month and this trend should continue in Q4 as remortgaging continues to outperform other areas of the market.
“Product purchasing levels remain consistent, but we do expect 10-year fixes to become increasingly popular in line with the current industry activity we are seeing. Borrowers are looking for certainty over their personal finances, and longer-term mortgage deals can provide this.
“There is a trade-off, however – in some instances borrowers can expect to pay around 10% more per month for a 10-year fixed product compared to a five-year product.”