Borrowers shun longer-term fixed-rate mortgages
Despite the growing popularity of five-year fixed-rate products, the number of 10-year fixed rates on the market fell by two-thirds last year due to a lack of demand from borrowers.
Figures from Moneyfacts.co.uk show that in August 2010, there were 31 10-year fixed-rate products on offer compared with just 11 last week.
Over the same period, the average rate of 10-year fixed-rate products fell from 5.81 per cent to 5.4 per cent.
London & Country head of communications David Hollingworth says: “We are in a market where there is a limited amount of funds and lenders have reviewed where they are looking to lend and seen that long-term fixed rates have not really taken off.”
First Action Finance head of communications Jonathan Cornell says: “There is relatively little demand for longer-term fixed rates now. More people are taking out five-year fixed rates.”
Lenders have been in a price war for the past two months, with many cutting their two, three and five-year fixed-rate deals, often by as much as 0.5 per cent. But the reduction has not been as fast with longer-term fixed rates.
For comparison, the average for five and 10-year fixed rates are currently 4.93 per cent and 5.4 per cent, down from 6.10 per cent and 6.16 per cent in August 2009 respectively. Five-year swaps stand at 1.81 per cent and 10-year swaps at 2.86 per cent, down from 3.56 per cent and 4.12 per cent in August 2009 respectively.
John Charcol senior technical manager Ray Boulger says: “I would be extremely surprised if some of the less strong banks could effect a 10-year swap with competitive terms because the counterparties might be a little reluctant to enter into a 10-year deal with some of them, therefore pushing up the price of these products.”