Homeowners taking out variable rate mortgages is at its highest level in 10 years as they feel that high interest rates will be “short-lived”, according to The Times.
In the three months to April 2023, 13% of new mortgages were variable rate deals which is the largest share in this time since the middle of 2013, the trade association UK Finance have said.
According to the ONS, the Monetary Policy Committee of the Bank of England voted 7-2 to raise interest rates by a further 0.5 percentage points from 4.5% to 5% in an effort to combat ongoing inflation, which stands at 8.7% – the 13th successive increase in the base rate.
People are choosing the most expensive short deals in the hope that interest rates will go have fallen by the tune they come to remortgage.
In the same article, Ross Lacey, a financial planner at Fairview Financial Management, an advice firm, said:
“Any new mortgage deals we are doing are either a two-year fix, where clients want certainty but deep down believe rates will be lower when they come to remortgage, or trackers, where clients are happy to accept some short-term pain in the belief that rates will come down at some point next year.
Even though rates are slightly lower than on a two-year fix, we haven’t done any five-year fixes recently as nobody wants to lock in a rate for that long when they feel we are close to a peak in mortgage rates at the moment.”
43% of homeowners opted for either a variable rate or a two-year fix in April, up from 25% in November, according to The Times.
Simon Gammon, from Knight Frank Finance, a mortgage broker, said:
“Even if inflation does come down, it doesn’t mean the Bank is all of a sudden going to halve Bank rate.
People who took a two-year fix in the last six to nine months will probably get a better rate, but it’s unlikely to be drastically better. These are the rates that are going to be around for the foreseeable future.”
