According to recent news, homebuyers in the UK are focused on getting the very best fixed rate loans rather than variable rate loans. Why is there such a strong preference for fixed rate loans and longer term loans? Continue reading to learn more.
A Look at Some Numbers
Mortgage businesses have found that over 70% of the mortgages that people take out when they purchase new houses for sale are fixed rate mortgages. Many buyers also prefer to start off with a 2-year fixed rate, with more than 50% of buyers opting for this shorter term mortgage, at least at the beginning. However, research has also shown that five-year fixed rates are also growing steadily more popular, with more than 25% of homebuyers opting for this option instead.
Why the Sudden Preference for Fixed Rate Mortgages Over All Others?
Clearly, individuals who are on the lookout for new houses for sale throughout the UK are being very cautious about their finances and are, therefore, opting for fixed rate mortgages. Borrowers are being very prudent about how much they’re willing to invest into a home, especially with demand for housing increasing as supply continues to dwindle. And they’re also growing more concerned about how much they can afford, especially over the long term. A fixed rate mortgage that will give buyers a great rate, at least over the next two or five years, can give borrowers the assurance they need. On the other hand, variable rate mortgages would put these individuals at risk of not being able to afford their mortgages once the interest rates are hiked up.
Mortgages May Continue to Become More Expensive
On top of a struggling housing market that’s unable to meet the demands of the many buyers who are seeking properties, recent news also suggests that mortgages will continue to become more expensive and even more difficult to get in the first place. This, on top of interest rates that are expected to rise, is encouraging more buyers to stick with a fixed rate mortgage, if they can get it, because they’ll be able to rest assured that, over the next few years, they won’t run into any unwanted surprises.
Mortgage applications now take longer than ever to process, and those who are applying for these loans are being asked more questions than before as well. Some of these questions, in fact, are considered quite intrusive. Therefore, if you’re applying for a mortgage, be prepared to discuss not only your finances but perhaps your hobbies as well. And be patient as your application is sorted and processed.
Getting Your Finances in Order
If you’re in the market for a new home, get your finances in order ahead of time. This will ensure you’ll have all of the information you need to properly file for a mortgage and get an approval sooner. It’s also highly recommended that you stick with a fixed rate mortgage that works for your budget, especially since interest rates will inevitably rise and a variable mortgage could put you at risk of being unable to pay your loan back.