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Borrowers Believe Base Rate Has 'Peaked'

Aug 18, 2007
Consumer confidence is increasing, the results of a new study have intimated.

The news comes as figures released by Spicerhaart Financial Services revealed a growth in the number of consumers opting to take out a variable-rate mortgage over the course of last month. During July, the number of homeowners opting for such a product increased to 14 per cent - the highest proportion noted since October 2006. Although the Bank of England's monetary policy committee (MPC) chose to increase the base rate for the fifth time in the last year (now standing at 5.75 per cent) in a move putting further pressure on homeowners' finances, Britons are reported to believe this will fall in the coming months.

Steve Cox, operations director of the financial services firm, said: "The increasing proportion of variable mortgages indicates that borrowers are starting to believe that interest rates have finally peaked, as inflation stabilises and are likely to come back down again before the end of the year. With interest rates still historically low, homeowners and first-time buyers, still confident in their financial security, are as keen as ever to move up the property ladder, even if this means borrowing slightly more."

Research from the company also showed that fixed-rate products continue to be the most popular option among secured loans consumers, as this accounted for some 86 per cent of all mortgages borrowed last month. However, uptake of short-term deals was revealed to have fallen. Offers lasting for two years were made up 55 per cent of all borrowing in July, down from the 60 per cent noted in June. Meanwhile, contracts for fixed-rates lasting three years and four years or more were reported to have remained consistent at 13 and 18 per cent respectively.

"Perhaps surprisingly, shorter-term fixed-rates saw a slight slip in popularity last month. However, the majority of consumers are still opting for fixed-rate deals to protect themselves against further rate rises," he added.

Out of the market, tracker deals (which follow moves to the base rate carried out by the MPC) were said to account for 11 per cent of mortgages taken out by borrowers during the month. Some 1.7 per cent of consumers opted for a discount contract as a further 1.3 per cent chose other types of variable-rate products.

Findings from Spicerhaart additionally indicated that the proportion of high loan-to-value mortgages increased for the sixth successive month as it reached a peak of 21 per cent. Consumer confidence was also shown to be lifting as the level of first-time buyers rose slightly to make up 37 per cent of all those purchasing a property.

However, Mortgage Financial representative Paul Davies warned prospective first-time buyers to ensure that they will be able to afford repayments when looking to purchase a home. With "the way interest rates have been going up over the last 18 months or so", Mr Davies also urged young professionals to make certain that their salary will be able to cope with potentially increasing mortgage costs in the future. Findings from the company also showed that such consumers are tending to choose fixed-rate products and are getting larger secured loans than average buyers in a bid into the housing market.
About the Author
Tom Dawson is the Editor in Chief for Essentially Home Loans where visitors can apply for cheap loans online. We also specialise in debt consolidation loans, and secured loans
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