Pricey fixed rate mortgages flood the market

19 December 2008 / by Rebecca Sargent
Fixed rate mortgages now account for 69 per cent of the mortgage market, but the interest rates continue to swell, despite a drop in base and swap rates, research from Moneyfacts.co.uk has revealed.

The figures show that fixed mortgage interest rates have only fallen by 0.71 percentage points since October, despite the fact that the two year swap rate which affects the cost to the lender, has fallen by a whole 2.61 per cent.

And, as a result, the gap between the cost to the lender incurred by the swap rate and the rate at which the mortgage is offered to consumers continues to increase. In December 2007 it was 1.22 per cent compared to 2.92 per cent today.

Commenting, Michelle Slade, analyst at Moneyfacts.co.uk said: "By not reintroducing cheaper tracker mortgages to the market, the lenders are leaving borrowers with little option to go on to more expensive fixed rate mortgages.

"It is evident that lenders are continuing to increase their margins, despite a fall in the cost of funding."

As stability and affordability come to the foreground, Ms Slade said: "Affordability is a key issue for borrowers, who prefer fixed rate mortgages as a way of stabilising their monthly outgoings and could be a secure option to weather the storm of the imminent recession.

"Borrowers expect to pay a slightly increased price to fix their mortgage repayments compared to tracker deals. However, today the gap between the average two year fixed and tracker mortgage stands at 1.16 per cent, compared to just 0.14 per cent this time last year."

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