Borrowers still keen on short fixed-rate deals

Fixed-rate mortgages remain popular among buyers but affordability is dropping.

That is according to new research from the Council of Mortgage Lenders (CML) which says recent warnings against short-term fixed-rate deals have had little effect.

Chancellor Alistair Darling has revealed that he wants to encourage lenders to push long-term fixed rate deals but at present these are proving to be unpopular.

Research by the CML shows that 89 per cent of first-time buyers (FTBs) took out a short-term deal in May, compared to 88 per cent in April.

In addition, 73 per cent of home movers signed up to similar mortgages, up from 72 per cent in the previous month.

"Taking out short-term fixed-rate mortgages may provide some reassurance, but eventually the loans will revert to a variable rate and the risk of a payment shock is real," warned Michael Coogan, director general of the CML.

"Financial difficulties are set to rise so it is essential borrowers speak to their lender if they are having repayment difficulties to avoid becoming another arrears statistic."

The research also highlighted how affordability in the housing market is falling, with interest rates rising alongside house prices.

Added to that, the amount of their wages that is being spent on mortgage payments has risen from 16.3 per cent in April to 16.6 per cent in May.

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