Mortgage choice at eight year high

Consumer choice of mortgage products has reached a near-eight-year high, the National Mortgage Index from Mortgage Advice Bureau has found.

There were 17,132 products available on the market on average in January - the highest number seen since March 2008 (23,802).

January’s total number of mortgage products represents an annual increase of over a third (34%), rising from 12,771 in January 2015. The number of products distributed through brokers has seen a much higher annual increase compared to direct-only products: the average number of broker products increased by 42% from 8,555 in January 2015 to 12,180, while in comparison the number of direct-only products increased 17% (from 4,217 to 4,952).

Broker products made up 71% of the total product range in January, and have remained at this level for the past five months. This is an increase of four percentage points since January 2015 (67%) and reflects the growing importance of intermediaries in the mortgage market following the introduction of the Mortgage Market Review.

Brian Murphy, head of lending at Mortgage Advice Bureau, said:“Not only are mortgage products increasingly affordable, with a sustained period of low interest driving down mortgage rates, but consumer choice is continually improving. Every borrower is different, so having a greater number of mortgage products available means they are more likely to find the perfect mortgage for their particular needs.

“The intermediary share of the mortgage market has gone from strength to strength in recent years. The new affordability criteria and stress tests introduced as a result of MMR make applying for a mortgage a more time consuming process. It no longer makes sense to spend this time talking to just one provider when you could be researching the whole market with an independent broker. Lenders that have historically opted not to distribute through brokers have now changed their stance to reflect this.”

Bullish start

The number of applications recorded by brokers in January was 36% higher than in January 2015, with remortgage applications seeing the biggest annual uplift (56% versus 28% in the purchase market). With consumer demand showing no signs of slowing, 2016 is forecast to experience strong market activity.

However, borrowers in January opted for caution, with a higher proportion choosing fixed rate products than a year earlier. This is particularly true among remortgage borrowers, with the proportion opting for a fixed rate increasing from 87.5% to 91.0% annually: a 3.5 percentage point increase. The same trend also applied to purchase borrowers: 94.7% chose a fixed rate in January, an annual increase of 1.6 percentage points.

Mortgage rates are still at record lows – according to Moneyfacts Average Mortgage Rate, the typical two year fixed rate was at 2.56%, the lowest ever recorded. However, with the goalposts for an interest rate rise continually changing, borrowers may be tempted by the safety of locking into rock bottom rates before they start to rise.

Murphyadded:“Borrowers tired of guessing when rates might rise may be tempted by the safety and security of fixed rates. These types of mortgages are attractive for borrowers who are comfortable with a longer-term commitment and prefer continuity of repayments. However, there is room for rates to fall further, and borrowers unconcerned with the prospect of fluctuating payments could save by opting for a tracker rate.

“One thing is for sure: it pays to switch. Existing homeowners who haven’t remortgaged in over a year could be making significant monthly savings, particularly if they are still languishing on a poor-value standard variable rate.”