Its September’s index shows that 65% of cases in the month took a variable rate, and by far the most popular with the more discerning borrowers were Term Trackers (34%), who are eschewing the headline grabbing two year rates much favoured by some lenders, in favour of longer term margin security.
‘Savvy clients are preferring to sacrifice a few basis points in the first couple of years of their mortgage, in order to give themselves the option of either being ERC free or remortgaging when the early repayment charge period ends, but staying on the same margin if more beneficial, rather than having to remortgage before the payment shock of going onto their lender’s much higher Standard Variable Rate,’ said Simon Collins, technical manager at John Charcol.
‘Remortgaging is increasing in popularity as more borrowers reach the end of deals they took out two years ago and unlike their predecessors, they now find themselves facing far higher payments, as those lenders who had guarantees that their Standard Variable Rates would be no more than 2% over the Bank Rate have now removed them. These guarantees have now been abolished in favour of 'managed rates' which means that the lender can set them at whatever levels they wish. These 'managed rates' are another reason why rates that track the bank rate for the term of the mortgage have become increasingly popular,’ he explained.
With more and more uncertainty creeping into the market, shorter term deals are proving less popular. ‘Future restrictions in credit availability, tightened lending criteria, potential falls in property prices, poor job security, all mean that clients can no longer be sure of being able to pick up another low deal when their current one ends. This is driving more borrowers towards either term trackers or longer term fixed rates,’ said Collins.
‘Throughout the past 18 months the attractiveness of term trackers to borrowers has increased, particularly when the margin between these and five Year Fixed Rates hit almost 2%. With the threat of any imminent rise in the bank rate still far in the distance, the margin has narrowed to the point where some borrowers are happy to pay the relatively small premium for five year payment security,’ he added.
One other product has increased in popularity every month since its launch. The five Year Hybrid Golden Hello product which combines a low tracker pay rate in the first two years of the loan, followed by the security of the final three years being on a very competitive fixed rate. ‘With many economists saying that the bank rate is unlikely to move very far, if at all, in the next two years, it is the ideal product for the uncertain times we find ourselves in. Last month saw just over 40% of John Charcol cases on either the Hybrid or a Term Tracker,’ 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.
