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British mortgage buyers 'have lost touch with reality'

Published 11/01/2011

Homeowners are losing touch with mortgage costs as a result of the current prolonged period of record low interest rates, research has indicated.

The average homeowner said they would be only prepared to take out a fixed rate mortgage if it was offering an interest rate of 3.3%, while 16% of people would not fix for anything higher than 2%, according to professional advice website

But, in reality, there are only two two-year fixed rate deals with rates of less than 3.3% and one three-year mortgage, all of which require a deposit of at least 25%, while there are no five-year deals at this level.

In fact, the current average interest rate on a two-year fixed rate home loan is 4.4%, rising to 4.99% for a three-year term and 5.33% for a five-year one.

The group said the current record low base rate of 0.5% had created a "rate-spoilt generation" who had lost touch with the reality of long-term mortgage costs.

When the same research was carried out two years ago, the average person said they would be prepared to take out a fixed rate deal of 4%.

Figures from the Bank of England show that the average interest rate in the final quarter of 2008 was around 6%.

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