Five year fixed rate mortgages are more popular than ever
The popularity of five years mortgages is continuing with the latest figures showing that 49% now opt for a fixed product of five years or more and they have almost doubled in popularity.
Low interest rates and desire for cost certainty are key factors influencing customer behaviour, according to the latest financial advisor confidence tracking index from Paragon.
According to the survey, almost half of all mortgage customers now opt for an initial fixed rate period of five years or more when selecting a mortgage, up from 25% in 2013.
Two and three year fixed rate products recorded a drop in popularity as a result, with two year fixed rate products falling from 54% of the total in 2013 to 37% in the first quarter of 2019, and three year fixed rate products down from 18% to 12%.
The vast majority of mortgage intermediaries, some 90%, highlighted low interest rates coupled with concern over future rate rises as the key factor behind the popularity of the five year fix. Customers’ preference for long term certainty on payments was also highlighted as important by 76% of intermediaries.
Whilst 50% of mortgage intermediaries felt that increased popularity of the five year fix was neutral for the mortgage market, 19% felt it could have negative implications.
In particular, intermediaries were keen to stress that products with a longer term initial fixed period should only be considered by customers who expected to stay in their current home for an extended period. For customers considering a house move, early redemption penalties could outweigh the benefits of a longer term deal.
Intermediaries did not foresee any immediate catalyst to disrupt the popularity of the five year fix. A more stable economic climate post-Brexit was the factor highlighted as most likely to lead to an interest rate rise and reduce attractiveness by 56% of intermediaries.
‘The five year fix has found a real sweet spot in the market. Low interest rates, economic uncertainty around Brexit, a drop in home mover transactions and more remortgaging means that five year products have become a viable option for a much larger proportion of customers,’ said John Heron, managing director of mortgages at Paragon.