Short-term fix mortgage warning issued by Propertymark
Propertymark President Mary-Lou Press says homebuyers should avoid making loan decisions based solely on rate forecasts.
Propertymark has warned property buyers against going for short-term fixed-rate mortgages.
The warning follows new data from financial comparison site Moneyfacts that reveals a growing number of borrowers are going for two-year deals.
Borrowers should avoid making decisions based solely on rate forecasts.”
Mary-Lou Press, President at NAEA Propertymark (pictured), says: “What’s particularly interesting is that we’re seeing buyers place a greater emphasis on flexibility than simply securing the lowest rate available.
“Many borrowers are conscious that their circumstances may change over the next few years, whether that’s moving home, upsizing or reviewing their borrowing position, and shorter-term fixes can provide more options when those decisions arise.
“That said, borrowers should avoid making decisions based solely on rate forecasts.”
Demand increase
Moneyfacts says the share of website users comparing two-year fixed-rate mortgages increased from 48.4% in February to 55.6% in May, while demand for five-year fixed deals fell from 27.7% to 21.8%.
Searches for 10-year fixed-rate mortgages also eased, falling from 6.5% to 4.5%.
Despite the average five-year fixed mortgage rate – at 5.68% – being lower than the average two-year fixed rate – at 5.78% – in May, demand continued to shift towards shorter-term deals.
More borrowers appear to be willing to take a calculated risk that they will have the opportunity to refinance sooner at lower rates instead of securing the lowest available rate today, Moneyfacts says.
Shorter fix
Adam French, Head of Consumer Finance at Moneyfacts, says: “It appears many borrowers believe the recent spike in mortgage rates will prove temporary, and are willing to pay a small premium for a shorter fix in the expectation that they will be able to refinance onto a more competitive deal in the future.
“The continued decline in demand for 10-year fixes backs this up. Unsurprisingly, borrowers are reluctant to commit to today’s rates for the long term, despite the payment certainty these products can offer.”
