Increasing speculation over interest rates caused a rise in remortgage borrowers locking into fixed rate deals in June, according to the National Mortgage Index from Mortgage Advice Bureau.
June saw 93% of remortgage borrowers opting to fix their rates, up from 88% during May. This matches the record set in November 2013 when 93% of borrowers remortgaging chose fixed over variable deals: the highest percentage seen since the Bank of England lowered its base rate to 0.5% on 5 March 2009.
Homeowners who remortgage have proved more willing than homebuyers to take a chance on variable deals since the base rate fell. Just six of the 64 months under the 0.5% base rate have seen fixed rates more popular for remortgages than for purchase mortgages.
Data from over 550 brokers and 900 estate agents shows the gap widened in the first five months of 2014 with 95% of homebuyers opting to fix between January and May, compared with 89% who remortgaged.
But following comments by the Bank of England governor Mark Carney about an earlier-than-expected rise in interest rates, the gap closed in June with 95% of buyers continuing to fix and an increasing number of remortgage borrowers following suit.
Using data from Moneyfacts.co.uk, the Index shows that average two and three year fixed rates both fell during June, having risen steadily since the start of the year.
The average two year fixed rate fell by 12 basis points (bps) to 3.61%, while the average three year fixed rate fell by 30bps to 3.75%: the lowest since the Index began tracking this data seven years ago in June 2007.
In contrast, the average five year fixed rate rose for a fifth successive month, gaining 5bps to reach 4.14%: the highest since February 2013.
As a result, the price difference between the average two and five year fixed rate in June was the widest since September 2011, while the difference between the average three and five year fixed rate was the biggest seen in three years, since June 2011.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Fixed rates have been the majority preference under the 0.5% base rate but as speculation grows over the timing of a future rate rise, they are fast becoming the default option whether you are buying or remortgaging.
“Anyone planning to make a move or switch their mortgage in the months ahead will be encouraged by the drop in the average price of two and three year fixes in June. We have seen gradual rises since the start of the year, but it proves that exceptionally good rates are still available and lenders are keen to lend.
“The Funding for Lending Scheme played a big part in bringing five year pricing down to historic lows last summer, but we are now seeing a return of the premium that comes with the security of a longer term fix. More people are keen to lock down their rates for longer before the Bank of England makes a change. Borrowers need to be prepared to pay a slightly higher price for the confidence and certainty that long term fixed rates can bring.”
