Nervous homeowners seek security in fixed rate mortgages

26 March 2008 / by Rachael Stiles
Homeowners who are worried about the ongoing effects of the credit crisis are increasingly seeking out 10 year fixed rate mortgages.

In an attempt to find protection from financial turmoil and somewhere safe to weather the storm, people buying a home or remortgaging are looking for security in long-term fixed rates; 12 per cent of all fixed rate mortgage deals are now static for a decade or more, according to figures from MoneyExpert.

Despite a growing demand for fixed rates, however, competitive deals are becoming increasingly hard to come by as lenders suffer their own fallout from the credit crunch and find it difficult to source funding.

As a result, over recent weeks and months they have been steadily withdrawing fixed rate deals, pulling all of their home loan range, ceasing to provide loans to sub prime borrowers, and hiking their rates.

The difficulty people are having in both buying and consequently selling their homes, and the added pressure on household budgets, is reflected in the number of house buyers on estate agents' books, which the National Association of Estate Agents found dropped 12 per cent in February. The NAEA also found that the number of first time buyers is falling. has found that the number of mortgages available to sub prime borrowers has dropped considerably since the credit crisis broke last summer, from 6,501 from 32 lenders a year ago, to just 1,867 available from 20 lenders today, illustrating that some mortgage providers have scrapped them altogether.

Julia Harris, mortgage analyst from, explained that this is because "Lenders are finding it increasingly difficult to find funding for sub prime mortgages.

"Investment banks have been hit hard by the troubles facing the US sub prime market and therefore are less willing or able to securitise the mortgage books of UK sub prime lenders."

In addition to hiking rates and withdrawing some of the their deals, lenders are implementing new rules, such as only accepting professionals, or requiring the borrower's parents to act as guarantors.

Those buyers who are looking for longer term fixed rate deals might be comforted to know that it works out cheaper than shorter term deals, because the arrangement fees are not as expensive.

Typically, a two year fixed rate loan will incur a £1,500 fee, but a five year term just £1,000; over a 10 year period, five year deals would rack up £2,000 of fees, but the fees for 2 year deals would add up to £7,500.

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