Rates on fixed mortgage have been soaring in recent weeks as events in the Middle East have driven up oil costs and this has fed into mortgage pricing.
This has had an impact on borrower behaviour as those taking out mortgages look for more flexible options, analysis by Moneyfactscompare.co.uk revealed.
It has compared borrower searches in March compared to those in February and found, following the beginning of the conflict in Iran, there was a shift to shorter fixes.
The data showed demand for two-year fixed rates had increased by 13% whilst five-year fixed rates had fallen out of favour. Indeed, the demand for these longer-term fixes fell by 9% with remortgage borrower demand plunging further by 15%.
But there was also a spike in interest for variable rates from movers. Moneyfactscompare found homemovers drove a 47% jump in variable rate searches, albeit from a low base (12% share).
In this same time period two-year fixed rates rose on average by 0.99% and five-year fixed rates by 0.81%. Variable rates, in comparison, jumped by just 0.28%.
This growing demand for shorter term or variable options is down to flexibility. With so much uncertainty around the conflict, and therefore what will happen to mortgage rates, borrowers prefer to lock into their rate for a shorter term. Variable rates, meanwhile, usually come without early repayment charges making them easy to exit if fixed rate pricing falls again.
Adam French, head of consumer finance at Moneyfactscompare.co.uk, said: “The speed and scale of rate rises over the past few weeks has quickly shifted borrower behaviour. With five-year fixes jumping by more than 80 basis points, many are pivoting towards two-year deals in the hope that the rate spike being driven by the conflict in Iran proves short-lived.
“Demand for five-year fixes is usually strongest among homemovers, who value certainty in their monthly payments, particularly as they have usually taken on a larger debt.
“Instead, there has been a dramatic swing towards shorter term options. Remortgage borrowers who are already facing significant payment shocks also appear reluctant to lock in at elevated rates for an extended period.
“Some borrowers may also be banking on rates falling sooner than the market is currently expecting. There has been a notable, if still relatively small, shift towards variable rate mortgages, especially among homemovers.
“While these products remain a minority choice, the uptick suggests some borrowers are willing to take on more risk, betting that rates could fall back in the near-term.”
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