'Interest only mortgage' remains popular
With the Bank of England (BoE) having just increased interest rates to 1.25%, MoneyTransfers.com has revealed an increased online inquiry rate for fixed-rate mortgages since the bank first began raising rates in December.
MoneyTransfers.com has looked at Google search data for different mortgage types since mid-December and found that the search term ‘fixed rate mortgage’ has risen by 33% in the year to date. ‘Tracker mortgage’ posted a 5.6% increase.
The term ‘interest only mortgage’, which has consistently ranked more highly than the other search terms over the last five years, has risen in popularity by 8% in 2022.
The BoE raised its base rate from 0.1% to 0.25% on December 16, followed by rises to 0.5% in February, to 0.75% in March, to 1% in May, and yesterday by a further 0.25 percentage points to 1.25%.
The rate rises are an attempt to cool the UK’s red-hot inflation, which has reached a 40-year high of 9%; well above the bank’s target of 2%. The bank said inflation may rise slightly above 11% in October this year.
Read more: Bank of England issues latest rate announcement.
Higher rates also make some mortgages more expensive, but anyone on a fixed-rate mortgage will stick to the same rate for a set period. A tracker mortgage is usually linked to the base rate, meaning it will rise as the rate goes up.
Joe DeMarkey, strategic business development leader at Reverse Mortgage Funding, said homebuyers’ budgets are being impacted by today’s higher rates, and many will likely choose to buy a less expensive home or wait to see what happens with home values.
“Typically, a rise in rates will impact first-time home buyers the most, which will also have an impact on lower-priced homes. Those looking to buy a home in this current interest rate environment may consider looking at adjustable-rate mortgage products, where the rate is fixed for five to 10 years, and then adjusts,” he added.
DeMarkey also explained why interest only mortgages are so popular.
“When rates have been historically low for such a long period of time, it’s not surprising that ‘interest only mortgage’ has sustained a high search volume. Compared to other types of mortgages that require both principal and interest payments, an interest only mortgage minimises the payment required of a borrower at the beginning of the loan, making it an enticing option in a low-rate environment.”
MoneyTransfers.com compared the increase in searches for the term ‘tracker mortgage’, ‘fixed rate mortgage’ and ‘interest only mortgage’ as these were significantly more popular than ‘SVR mortgage’, ‘adjustable rate mortgage’ or ‘variable rate mortgage’.
Search data comes from Google Trends and shows the popularity of each search term over the given period relative to each other. A higher score represents more people searching for that term, though exact figures are not given.