Last month over 10% of John Charcol borrowers opted to take out what is considers to be one of the most innovative products of the last decade, the hybrid mortgage.
‘Borrowers have been reluctant to take longer term fixed rates when they know that variable rates are likely to remain low for the next couple of years at least. Yet at the same time they are anxious over longer term payment security, knowing that in two years time, fixed rates may well be significantly higher. The Hybrid is therefore the perfect product for those borrowers who want to take advantage of low variable rates now, while securing a fixed rate element at today’s historic low prices,’ said Simon Collins, ttechnical manager at John Charcol.
‘The product is a longer term mortgage that is a blend of both tracker and fixed rates, and currently comprises a margin over the bank rate for the first two years of the mortgage, followed by a fixed rate for the final three years. Everyone knows that the bank rate will increase at some point, but the big question is when and how fast?’ he explained.
‘The Hybrid is arguably the most innovative mortgage product we’ve seen in a good few years and so far is only offered in the intermediary market by Accord Mortgages. With the current stagnation in the housing market, and many high street lenders sticking obdurately to their traditional two year products because they have the lowest initial pay rates, it would be fantastic to see other lenders take up the mantle started by this novel product,’ he added.
He believes it is ideal for first time buyers who want to take advantage of low pay rates now, but also have longer term security built in, and more widespread availability from lenders would almost certainly stimulate that end of the market.
Following on from the sharp increases in variable mortgage rates towards the end of 2011, this year there has already been two to three rate increases, which would seem to be setting the trend going forward, said the broker.
‘Higher published pay rates are not likely to encourage new purchase business, nor borrowers sitting on historically low SVR’s to remortgage. It is ironic that one lender who has hiked the majority of their best rates by over 0.9% in just over four months, has this week claimed that 2011 saw the most affordable mortgage deals. Obviously not anymore,’ said Collins.
The John Charcol Mortgage Index is published monthly, tracking three important statistics, based on mortgage business written by John Charcol. The index is a leading indicator of trends being based on mortgage applications submitted to lenders, whereas figures reported by the Council of Mortgage Lenders (CML) and the Bank of England (BofE) are based on completions, which typically take place two to three months after the mortgage application is submitted.
