Tracker mortgages continue to gain ground

Tracker mortgages continue to gain ground

08 February 2010 / by Rachael Stiles

Tracker mortgages are continuing to become increasingly popular across the market, according to new figures from Legal & General.

The lender's quarterly Mortgage Purchase Index for the last quarter of 2009 is the latest report to show a significant shift towards tracker mortgages, away from fixed rate deals, as the base rate remains at its record low of 0.5 per cent and shows little sign of moving in the near future.

This is true of the residential and buy to let mortgage sectors, the report shows, with tracker mortgages accounting for 57 per cent of buy to let mortgages, compared to 30 per cent in the previous quarter, and 43 per cent of residential mortgages were for tracker rates, up from 17 per cent.

While tracker mortgage rates have fallen in line with the base rate, the fixed rate mortgage market has remained less mobile, the research found, showing that the average two year fixed rate dropped only slightly between the third and fourth quarters, from 4.99 per cent to 4.98 per cent, and the average three year fix from 5.86 to 5.46 per cent, while the average five year fixed rate fell more substantially from 6.42 to 5.80 per cent.

Amid speculation that the base rate will not rise for several months, and unattractive fixed rate deals, Stephen Smith, director of Legal & General mortgages, said this offers "a golden opportunity for people to think about paying off some of their debt. The low interest rate environment has led to a fair bit of innovation in tracker products, what with capped trackers, reverse stepped trackers and lifetime trackers all featuring recently."

The attraction of tracker mortgages might wear off soon however, Mr Smith suggested, because a number of lenders have cut the cost of their fixed rate mortgages in recent weeks, which could see a path cleared to them coming back into fashion as the year goes on and a base rate rise becomes more imminent.

"Fixed rates are now being cut because lenders are starting to become more comfortable with the outlook for the sector and because of increased competition," he said. "The industry seems to have shrugged off the concerns of 2009 and is starting the New Year with fresh optimism."

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