Tracker mortgages in vogue, fixed rates so last season

Tracker mortgages in vogue, fixed rates so last season

14 May 2010 / by Rachael Stiles

Borrowers are still favouring the savings opportunities of a tracker mortgage over the security of a fixed rate deal.

According to new research from Paragon Mortgages, the proportion of residential mortgage customers choosing a tracker mortgage has exceeded the number opting for a fixed rate for the first time in a year.

This suggests that borrowers expect interest rates to remain low for the foreseeable future, says Paragon, but are still wary of changes in the economy, as they are rejecting long-term deals for two and three year terms.

Tracker mortgages accounted for 51 per cent of brokers' residential mortgage business during the first quarter of 2010, the Paragon Mortgages' Financial Adviser Confidence Tracker shows, up from 45 per cent in the fourth quarter of 2009.

Meanwhile, the proportion of residential mortgage business taken by fixed rate mortgages fell from 46 per cent to 43 per cent – the lowest level of fixed rate business since the final quarter of 2008.

Commenting on the figures, John Heron, managing director at Paragon Mortgages, said that the popularity of tracker mortgages has been growing since interest rates fell to a record low of 0.5 per cent last year, and borrowers are looking to cash in.

"Although there are some good fixed-rate deals available, the average rate on fixed-rate deals is still significantly higher than the Bank of England's interest rate, and they are becoming less popular with borrowers," he said.

Of those borrowers who are opting for the security of a fixed rate, two year fixed rate mortgages are the most popular, with 84 per cent of mortgage brokers ranking them as the first or second most popular, and 63 per cent saying that they were the most popular, followed by three year fixes.

In reflection of the current economic climate, just two per cent ranked full term fixed rates as the most popular, and almost half ranked them as the least popular option.

"Borrowers opting for fixed-rate deals don't want to be tied into long-term arrangements," Mr Heron explained. "Two-to-three year deals seem to be popular because they offer the borrower immediate security, but also the flexibility to change their mortgage in the medium term."

© Fair Investment Company Ltd