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Mortgage confusion as Bank interest rate a mystery

06 August 2008 / by Rebecca Sargent
As the Bank of England base rate hangs in the balance, it seems potential homeowners are confused about which type of mortgage to go for.

According to Abbey, two fifths of all homeowners have admitted that they would be confused about whether to opt for a fixed rate or tracker mortgage if they were choosing a new deal ahead of the MPC's base rate decision expected tomorrow.

The fact that there was a three way split amongst Monetary Policy Committee members at the last decision has thrown borrowers, says Abbey. According to the lenders' research, 41 per cent of mortgagees were unsure what type of mortgage they would go for in July, compared with 30 per cent the previous month.

As it stands, fixed rate mortgages remain the most popular in the market; 47 per cent of participants said they had opted for the security they provide. Out of those who would opt for a fixed rate mortgage, six per cent would go for a two-year fixed rate deal if they were to remortgage tomorrow, compared with seven per cent last month, and eight per cent the month before.

Due to the uncertainty hanging over the base rate decision, five year fixed rates have reduced slightly in popularity. On the tracker mortgage side, 10 per cent of people said they would choose a two-year flexible tracker deal if they were to remortgage tomorrow.

Director at Abbey Mortgages, Phil Cliff, said: "The current uncertainty surrounding base rate decisions and the general uncertainties on the market at the moment are clearly feeding through into consumers' views on mortgages. However, in times of uncertainty, people want security and nearly half of all borrowers saying they'd choose to fix if they remortgaged tomorrow, most choosing a three year deal."

In response to this uncertainty, Legal & General has launched an exclusive tracker mortgage in partnership with Halifax, which offers a two year tracker at 5.94 per cent.

Commenting on the tracker mortgage, Martyn Smith, head of mortgages at Legal & General, said: "We expect it to be very popular, especially with people remortgaging who do not want to tie themselves in to a high fixed rate. Whilst some borrowers may adopt a wait-and-see approach by sitting on their lenders' SVR, this tracker represents an attractive alternative."

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