Following the Bank of England’s decision to raise the base rate another 0.25% to 5% at the beginning of November, record levels of borrowers fearful of further interest rates have opted for long–term fixed rate mortgages, according to Mortgages Direct.

Mortgages Direct’s monthly survey reveals that the number of borrowers opting for five year fixed rate deals has increased from 20% in October to 26% in November; over a quarter of all mortgages arranged and a record high since the survey began.

The total percentage of fixed rate mortgages taken out was 97% with only 3% of borrowers choosing variable mortgages.

Proportion of borrowers opting for fixed rate mortgages (2, 3, 5 years) since January

Mortgages Direct’s survey also reveals that there was an increase in sub prime business in November, with 18% of borrowers opting for these mortgages compared to 13% in October. This is a trend that is likely to continue in the run up to Christmas and into the New Year as homeowners opt to consolidate their debts following a period of overspending, said the report.

First-time buyers struggle

The level of first time buyers remained low in November at 32%, as the group struggle to afford a property following the interest rate rise and rising prices.

Mortgage Direct director, Peter Gladdy commented: “First time buyers are often the most sensitive to a rise in interest rates and are still finding it increasingly difficult to get onto the property ladder.”

“This low level of first time buyers is worrying as housing market activity is dependent on the influence of first time buyers. If the level of first time buyers drops down further, the market will experience a slowdown. The housing market is not strong enough to justify a rise in rates.”

Separately, the Council of Mortgage Lenders yesterday reported a strong bounce back in the take-up of fixed-rate lending in October - rising to 124,100 loans, from 109,100 in September. Fixed rates accounted for 62% of all house purchase loans in October, compared to 59% in the previous month.