New homebuyers choose fixed rates

http://news.bbc.co.uk/go/rss/-/1/hi/business/6444885.stm

Version 0 of 1.

The prospect of further increases in interest rates has prompted a record uptake of fixed-rate mortgages by first-time buyers.

In January, 85% of first timers took out a fixed-rate deal - the highest proportion on record, according to the Council of Mortgage Lenders (CML).

Among house movers 70% took out a fixed-rate deal.

The average interest rate of these mortgages was 5.27%, following the three rate rises since last August.

"Each month it seems that the prospect of another interest rate rise is balanced on a knife edge," said the CML's director general Michael Coogan.

"More and more borrowers are protecting themselves against this risk and choosing the certainty of fixing their monthly mortgage payments," he added.

Affordability problem

Despite the higher cost of borrowing, house prices are still rising around the UK.

The Communities and Local Government Department (DCLG) reported yesterday that house price inflation in January had gone up to 10.9%, pushing the cost of the average house up to £205,286.

However, there are some indications that the market may, eventually, cool off.

The Royal Institution of Chartered Surveyors (RICS) reported that in February new enquiries to estate agents from potential buyers fell for the third month in a row.

"The interest rate rises have started to worry would-be buyers with many concerned that they will be unable to meet mortgage repayments," said RICS spokesman, Ian Perry.

"Affordability for many will continue to decrease in the coming months as the January rise, and further rises take effect."