Borrowers are still fearful of imminent interest rate rises, with 84% of borrowers opting for fixed-rate deals, according to Mortgages Direct.

In contrast, lenders appear to be confident that interest rates will drop in the near future, with the rates for two year and five year best buy fixed rate mortgages decreasing from last year.

Key findings from Mortgages Direct survey for April reveals:

• Fixed rate lending has increased by 54 percentage points since April 2004
• Two year fixed rate deals are the most popular type of fixed rate deals
• 74% of borrowers opted for repayment mortgages in April
• 3-5 year discount variable rate mortgages down by 20 percent from April 2004
• Interest rates on best buy fixed rate mortgages has decreased over the last year.

The survey reveals a staggering increase in fixed rate deals from 30% this time last year. Consequently the number of variable rate mortgages has dropped significantly by 56 % points since April 2004. The changing trend in the popularity of different mortgages mirrors the changing interest rates.

For example, reflecting the Bank of England’s recent interest rate hikes over the last year, the standard variable rate and discount variable rates have increased, whereas the best buy fixed rates have actually gone down.

	Mortgage interest rates for May 2004 and May 2005
Type of mortgage		May 2005	May 2004
SVR (base rate)		6.59%	5.93%
2 year discount variable rate		4.45%	3.70%
5 year discount variable rate		4.75%	4.18%
Best buy 2 year fixed rate		4.55%	4.84%
Best buy 5 year fixed rate		4.84%	5.19%

Peter Gladdy, Mortgages Direct director said, "Despite the Bank of England’s decision to freeze interest rates, with a substantial increase in the percentage of borrowers opting for a fixed rate loan from last year, it is clear there is an overwhelming fear that interest rates will increase further."

The two-year fixed rate deals were the most popular in April compared to other fixed rate deals with 46% of borrowers opting for two years, 18 % of borrowers opting for three years fixed and 21 % opting for five years and longer.

Peter Gladdy points out, "The increasing popularity of short term fixed rate lending indicates that borrowers are nervous about imminent hikes in interest rates. However they are evidently confident that stability will return in the longer term, as only a small percentage of borrowers are choosing fixed rates for five years and longer."

LTV mortgages

The high LTV mortgages have increased in popularity The Mortgages Direct monthly survey shows that 10% of borrowers applied for higher LTV mortgages, this contrasts to 4% last year., as a rising number of mortgage lenders have addressed the key issue for first time buyers - affordability, rather than sticking to traditional income multiples of three and four times salary.

Peter Gladdy said: "The key criterion for whether a buyer is ready to step on to the property ladder is the repayment costs, rather than whether they can raise the customary deposit of 10% of the value of the property."

"We have seen an increase in LTV mortgages over the last year as more mortgage lenders begin to address the growing problem of the lack of first time buyers, but the number of first-time buyers still is historically very low."

The survey reveals that there is an increasing unwillingness to link a mortgage to an investment with 5% of borrowers taking out buy-to-let mortgages down from 15% last year.

"There has been a lot of speculation that the buy-to-let market is wobbling," said Mr Gladdy. "Our figures certainly support this and perhaps indicate that the buy-to-let industry may well have peaked. Rental yields are decreasing and landlords are struggling to cover their mortgage interest. However the industry is reacting to this changing climate and becoming a lot more innovative. Buy-to-let mortgages have dropped as lenders attempt to entice nervous investors into the market. As a result there are currently some very competitive deals."