To Fix Or Not To Fix?}

Submitted by: Jim Barnaby

Those considering buying investment property who may use a mortgage to do so will most likely have been keeping an eye on the fast-developing mortgage sector in recent times, in which the abundance of choice that was available a year ago has been substantially whittled down.

For the UK property market, this may have all kinds of ramifications. On the one hand, the withdrawal last week of popular products to which mortgage hunters have been rushing by the Co-operative Bank and First Direct may not be the last such cases, according to personal finance magazine Editor Rebecca Atkinson said that while raising rates the way Halifax have done may be the approach some take, “it’s fairly likely that others will suspend lending for new customers as well”.

Those who haven’t done that have, as in the case of Halifax, raised rates for those who cannot put together a 25 per cent deposit, whereas Abbey has axed its 100 per cent loan-to-value deals.

Of course, many of those investing in UK property may have the kind of capital necessary to cope with these restrictions, for instance by being able to sell an existing asset in order to raise the extra needed to fund a larger deposit. In the wider market, however, the current situation is sure to affect some first-time buyers.


The consequences of this may be twofold. Firstly, as has often been suggested, the buy-to-let market may be a winner from the increased demand for such accommodation from people who would otherwise be getting on the housing ladder until the market perks up again, with an improvement in the credit situation and sufficiently affordable prices to lure buyers back.

However, the second result may be a much longer-term trend, in the most literal sense. While research by Abbey has found that among re-mortgagers the popularity of five year fixed-term mortgages has jumped in the last month from ten per cent saying this would be their deal of choice if they were to remortgage tomorrow to 24 per cent, this appears to be contradicted by figures from the Council of Mortgage Lenders (CML) suggesting the reverse. These statistics indicate that in February just 52 per cent of borrowers chose fixed-rate deals, a situation it attributes to the expectation of more interest rate cuts.

Such a contrast may seem a paradox, not least as Abbey’s head of mortgages Nici Audhlam-Gardiner suggested mortgage customers are “keener then ever to lock themselves into a deal for longer than two years such as a five-year fix”.

This may hint at an the explanation that squares the circle, bolstered by another finding of the Abbey survey, which showed a much smaller increase in the number of people who would take a two-year fixed-rate deal from seven per cent to ten per cent. Therefore it may be that those whose horizons are less fixed on the long-term are looking no further than the next few months.

In contrast, the longer the fixed-deal offered the more people who want to take it. This may suggest that the further ahead a customer wishes to look, the greater the desire to opt for the certainty of a long-term rate.

Chancellor of the exchequer Alistair Darling has frequently said he wishes to encourage such long-termism, including fixed rates that last as long as 25 years. Another piece of research, from the Fair Investment Company, has found that 40 per cent of new borrowers would be willing to take on a deal. So emerges the pattern: the longer the fixed rate deal, the more who like the idea.

If Mr Darling’s desire for long-term mortgages to be commonplace is fulfilled due to a change in thinking prompted by the credit crunch, then the long-term implications could be significant. For should a large segment of the mortgage market – including owner occupiers and investors – opt for fixed rates that last for many years, it could see an end to the fluctuation in popularity between variable and short-term fixed deals that has characterised the shift between rising and falling rates in the last two years.

In today’s world Property investment is an excellent investment option especially investment in UK

About the Author: Jim Barnaby is a real estate investment broker and successful property investment adviser delivering research and selected UK and overseas property investment solutions with experience in spanish properties, french property investment, German property, Cyprus holiday homes, Property in Cape Verde, German property investment, cape verde property buy to let property Url:


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