House buyers put their faith in variable rates

Fixed-rate mortgages are no longer flavour of the month as low interest rates boost the popularity of variable-rate and tracker…

Fixed-rate mortgages are no longer flavour of the month as low interest rates boost the popularity of variable-rate and tracker mortgages, experts say.

The wisdom of opting for a fixed mortgage varies according individual circumstances but low interest rates mean they are not currently a popular option, explains Mr Peter Bastable of Simply Mortgages.

"People believe rates are going to stay low and find variable rate mortgages more tempting," he says.

Earlier this year, a number of institutions responded to waning interest by announcing a cut in fixed rates, although whether this has sharpened appetites for the product remains to be seen.

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Less than a year ago however most Irish lenders moved to raise their fixed rates because bond yields were beginning to rise.

There was a sense at the time that the euro-zone economy was on track to improve but now long-term rates are falling again.

The consequence for short-term rates - the ones that tend to be most closely watched by the media and are particularly relevant for variable or tracker mortgages - is that expectations of an imminent rise have been replaced by predictions that these rates will fall from their current historic low of 2 per cent.

There is no right answer to the question of which kind of product or rate to choose, but mortgage hunters should ask themselves a few questions before taking the plunge.

If they would get stressed at the idea of their mortgage repayments varying according to the decisions of the European Central Bank, a fixed rate might offer them some comfort.

If however they would be more upset by the prospect of being stuck on an expensive fixed rate while variable and tracker rates move down, a variable or tracker product may be better suited to their needs.

Mortgages, like all financial products, need to be chosen with care, with the requirements and situation of the individual borrower always the most important factor in making a decision.

AIB offers a two-year fixed-interest mortgage to new customers at 3.85 per cent or 3.5 per cent APR. Bank of Ireland has a two-year fixed-interest mortgage for new and existing business at 3.55 per cent or 3.6 per cent APR.

EBS has a two-year fixed new business mortgage at 3.58 per cent, 3.4 per cent APR; First Active offers a two-year fixed- rate mortgage for new business at 3.58 per cent, 3.6 per cent APR; while ICS has a two-year new customer fixed rate of 3.55 per cent, or 3.6 per cent APR. National Irish Bank's two-year fixed rate for new customers is 3.6 per cent, 3.6 per cent APR.