Mumbai: In a bid to ensure speedier monetary policy transmission, Reserve Bank on Tuesday asked banks to price fixed rate loans
of up to three years based on their marginal cost of fund from April 1.
According to AFG this is the highest proportion of fixed rate loans
it has seen in the last ten years.
The National Housing Bank has revised its earlier decision where it had said that dual rate loans would be classified as fixed rate loans
if at the time of signing the contract the loan was subject to a fixed rate.
Swap rates, upon which the fixed rate loans
are partially based, have jumped by around 0.25% since the beginning of the month as speculation that an interest rate hike is imminent increased.
Moneysupermarket.com's Hannah Mercedes-Skenfield says: "Many borrowers are sitting on extremely low SVR rates, which many took when fixed rate loans
came to an end, and they have no incentive to move."
By contrast, those who arranged new fixed rate loans
in July - when the average rate peaked at 7.08 per cent - is looking ruefully at new deals.
When Nationwide BS started flagging a round of cuts on fixed rate loans
over two and five years, Britain's biggest building society indicated that big lenders might start to follow the Bank base rate downwards.
The average fee charged to someone taking out a discount mortgage has risen by 15 per cent, to pounds 407, while fees for fixed rate loans
are 22 per cent higher, at an average of pounds 494, according to financial website MoneyExpert.com.
As many of the loans originated this year will be fixed rate loans
with ten year terms, even if originators across the entire industry ceased including defeasance in their loans today (which is extremely unlikely), there would still be loans originated this year being defeased in 2016.
The CML reckons average rate on new variable rate loans is 3.94pc - with fixed rate loans
of 1-2 years and 2-5 years costing much the same.
For total certainty about costs, fixed rate loans
are available for ten or even 25 years!