More customers than ever are opting for an initial fixed period of five years or more when choosing a mortgage, according to Paragon.
Its Financial Adviser Confidence Tracking (FACT) Index surveyed over 200 mortgage intermediaries, revealing that 49% now opt for an initial fixed rate period of five years or more, up from 25% in 2013.
There was a drop in popularity in two and three-year fixed rate products, with two-year fixed rate products falling from 54% of the total in 2013 to 37% in Q1 2019, and three-year fixed rate products down from 18% to 12% during the same period.
Meanwhile, 90% of respondents highlighted low interest rates and concerns over future rate rises as the key factor behind the popularity of the five-year fix. Customers’ preference for long-term certainty on payments was also cited as important to 76% of intermediaries.
Whilst half of mortgage intermediaries felt that increased popularity of the five-year fix was neutral for the mortgage market, only 19% felt it could have negative implications.
Intermediaries stressed that products with a longer term initial fixed period should only be considered by customers who expected to stay in their current home for an extended period.
For customers considering moving home, however, early redemption penalties could outweigh the benefits of a longer-term deal.
Additionally, intermediaries did not anticipate any immediate catalyst to disrupt the popularity of the five-year fix. Some 56% claimed that a more stable economic climate post-Brexit was most likely to lead to an interest rate rise and reduce attractiveness.
John Heron, managing director of mortgages at Paragon, commented: “The five-year fix has found a real sweet spot in the market. Low interest rates, economic uncertainty around Brexit, a drop in homemover transactions and more remortgaging means that five-year products have become a viable option for a much larger proportion of customers.”
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