Paragon’s latest Financial Adviser Confidence Tracking (FACT) Index has revealed that 49% of all mortgage customers now opt for an initial fixed rate period of five years or more when selecting a mortgage, up from 25% in 2013.
Two and three year fixed rate products recorded a drop in popularity as a result, with two year fixed rate products falling from 54% of the total in 2013 to 37% in Q1 2019, and three year fixed rate products down from 18% to 12%.
90% of mortgage intermediaries highlighted low interest rates coupled with concern over future rate rises as the key factor behind the popularity of the five year fix. Customers’ preference for long term certainty on payments was also highlighted as important (76% of intermediaries).
Whilst 50% of mortgage intermediaries felt that increased popularity of the five year fix was neutral for the mortgage market, 19% felt it could have negative implications.
In particular, intermediaries were keen to stress that products with a longer term initial fixed period should only be considered by customers who expected to stay in their current home for an extended period. For customers considering a house move, early redemption penalties could outweigh the benefits of a longer term deal.
Intermediaries did not forsee any immediate catalyst to disrupt the popularity of the five year fix. A more stable economic climate post-Brexit was the factor highlighted as most likely to lead to an interest rate rise and reduce attractiveness (56% of intermediaries).
John Heron, managing director of mortgages at Paragon said: “The five year fix has found a real sweet spot in the market. Low interest rates, economic uncertainty around Brexit, a drop in home-mover transactions and more remortgaging means that five year products have become a viable option for a much larger proportion of customers.”