Variable rate demand drops 75% in one year

Variable rate demand drops 75% in one year : Consumers were correct – borrowers identified that a rate rise was likely, and many smartly capitalised on the situation. Demand for fixed-rate mortgage deals has surged over the last twelve months while the popularity of variable remortgages has plunged, according to LMS.Its data shows that in October, from last year’s 19% market share, demand for variable products had fallen to just 5%.

LMS believes the trend has been driven by borrowers’ priorities shifting as expectations of an increase in the Bank rate grew.This has seen the popularity of longer-term fixed rate deals surge, with demand for five-year fixed deals making up a record 50% of all of October’s remortgage transactions. This is over double the 19% seen in the previous year.October’s remortgage market was the second busiest since the financial crisis, with 40,590 remortgage transactions and over £7bn lent. When seasonally adjusted, the Bank of England’s recent report highlights that the number of transactions rises to 51,593, the highest since October 2008.

In October, a record four-fifths (78%) of remortgagors predicted that interest rates would rise over the next year. This is a dramatic change in attitudes from just the previous month, when only 56% of remortgagors made the same prediction.

Even before June’s Monetary Policy Committee meeting – when three of the nine members voted for a rate rise – consumer anticipation was steadily increasing and, in the six-month period between September 2016 and February 2017, the percent of borrowers who expected rates to rise within the year rose from 14% to 49%. Nick Chadbourne, chief executive of LMS, commented: “Consumers were correct – borrowers identified that a rate rise was likely, and many smartly capitalised on the situation. This activity drove remortgaging volumes to peak, with the highest remortgage numbers since 2008.

There will be interesting times ahead as the Bank of England hint at a long stretch of rises, I suspect many more consumers will opt to fix deals while rates are rock bottom and the market will continue to flourish for the foreseeable future. “Lenders are tweaking their product portfolios to respond to changing consumer demand and remain competitive. With variable products unable to deliver the security consumers are seeking, this means fixed-rate products are set to stay at the top of the leader board for the foreseeable future.

“Variable rates do offer a number of benefits that borrowers should consider when they’re getting a new mortgage – including flexibility, low-fees, and low-deposits. But with Brexit looming on the horizon, the market retains a degree of unpredictability. It’s hard to ignore the attractiveness of fixed-rate products at the moment. November’s rate rise ended ten years of falling rates and may well have fired the starting pistol on a decade of increases. Given how easy conveyancing and remortgaging is now – thanks chiefly to technological innovation in the sector – and with these hikes set to continue – it is difficult to imagine that this surge in activity will disappear any time soon.”

Unattributed – Source