Borrowers are continuing to put their faith in a record low base rate and to shun fixed rate deals in favour of tracker mortgages, according to broker John Charcol.
In March, tracker mortgages accounted for 84 per cent of all home loans taken out, the John Charcol Mortgage Index shows, the highest level since October 2008.
The base rate has been at 0.5 per cent for more than a year, and the difference in cost between variable and fixed rate mortgages – about 2.5 per cent – is such that interest rates would have to rise considerably to counteract the potential saving, the mortgage broker and adviser said.
Explaining the figures, Drew Wotherspoon, director of marketing at John Charcol, said: "At first glance, the difference between variable and fixed rates is nothing short of monumental. Yet, when you look below the surface, with the large premium that borrowers have to pay for a fixed rate mortgage and the expected future movement of bank rate, it is little surprise that variable mortgages dominate their fixed counterparts."
The Index also revealed that first time buyer mortgage customers dwindled in March, representing just seven per cent of mortgage sales – the lowest level for 12 months – which Mr Wotherspoon puts down to "prolonged issues" resulting from the economic crisis, such as bigger deposits and tighter criteria, in addition to rising house prices.
Conversely, comparison website moneysupermarket.com has found that fixed rate mortgages have fallen in cost by 3.36 per cent since April 2008 – their lowest level since 2007 – so borrowers who are sitting on the fence between fixed and variable rates might want to consider fixing before interest rates start to rise.
Hannah - Mercedes Skenfield, mortgages channel manager at moneysupermarket.com, commented: "It's promising that fixed rate mortgage rates are moving in the right direction, and we are seeing average rates falling to their lowest level since the height of the credit crisis.
"With inflation rising, the potential for the Bank of England to increase base rate in the near future increases, so borrowers who are looking to fix their mortgage repayment should consider whether now is the perfect time to switch."
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