Rate spoilt generation

With the Bank of England base rate remaining at 0.5% for a record 21 months, tracking data from unbiased.co.uk reveals the emergence of a new ‘rate-spoilt' generation.

On average the fixed rate deal that homeowners would be prepared to fix at is now an unrealistic 3.3%.  This has dropped significantly from an average 4.0% in January 2009.

It appears the lengthy period of low interest rates has resulted in homeowners losing touch with mortgage reality, as best buys for three year fixed rate deals are currently around 5.1%3 - nearly 2% more than the average homeowner is currently willing to pay.

Fixed rate mortgage deals reached around 7.8% at the end of 2007 therefore the current average fixed rate deal of 5% appears to be a long-term ‘good' deal when considering economic predictions stating that interest rates will rise. 

An even more worrying one in six (16%) homeowners would only be happy with a fixed rate deal of 2% or less for the next three years. However, historical data since 2005 shows that fixed rate deals have never been at such low levels as this, highlighting the stark contrast between homeowner ideals and reality.

With SVR mortgages remaining lower than best buy fixed rate mortgage deals in the current market place; it appears homeowners are still refraining from remortgaging to a fixed rate deal until the base rate starts to rise.

When describing their current mortgage situation, almost a third (31%) of all homeowners state they are on their lender's SVR mortgage and have no plans to change this.  This has increased from just a quarter (26%) who stated this in January 2009.

Only one fifth (22%) of homeowners have just tied into another fixed rate deal after their previous fixed rate ended, instead of automatically moving onto their lender's SVR.

Similarly, just a quarter (25%) of those currently on a fixed rate mortgage who are coming to the end of their deal will move onto a new deal as soon as this one ends - instead of moving onto their lender's SVR.

Karen Barrett, Chief Executive of unbiased.co.uk comments:

"With the base rate now remaining at a record low of 0.5% for 21 months, possibly 22 months after next Thursday's base rate decision, our tracked research shows this has had a dramatic effect on homeowners' rate expectations.

"Their ideas of what is a reasonable fixed rate mortgage have become distorted in the low-interest rate environment, and they need to ensure that their mortgage expectations are realistic.

"While record numbers of homeowners remain on their lender's SVR instead of tying into another deal, and with many predictions for rate rises during 2011, homeowners need to be alert to ensure they don't miss out on getting the best deals before it's too late. 

"It can be very confusing for homeowners to keep track of which is the best mortgage for them and when is the best time for them to move onto a new deal.  Homeowners should seek whole of market mortgage advice to ensure they get the best deal from the whole of the market at the right time."