Fixed-rate in decline as tracker-rate 'revels in limelight'
Tuesday, 08 Apr 2008 14:49
Interest rate expectations sees swing in popularity towards tracker-rate mortgages
The threat of interest rate increases from the Bank of England has reportedly resulted in a boost in the popularity of tracker-rate mortgages.
According to research from the Council of Mortgage Lenders (CML) the proportion of borrowers choosing tracker-rate loans increased to 35 per cent in February.
This is up from 33 per cent in January, and from 14 per cent in February 2007.
In contrast, just 52 per cent of borrowers selected fixed-rate mortgages in February – the lowest level since March 2005.
However, the CML argues the figures relate to decisions taken several months ago, and thus do not consider the shrinking range of products available on the market at present.
"More recently, there has been consistent evidence of tightening in lending criteria which will lead to shrinking pipelines of new business as the recent Bank of England's credit condition survey made clear," said CML director general, Michael Coogan.
"We expect this process of further tightening in lending criteria to continue in the second quarter as lenders respond to the challenging market conditions."
It is thought the reversal in the competing products' popularity is based on expectations of a further cut in the base rate of interest in coming months.
The Bank of England has cut rates twice recently, by 0.25 per cent in December and February - to 5.25 per cent.
The Bank's monetary policy committee (MPC) will meet this week to decide the future direction of rates, with a decision expected on Thursday.
The change toward variable rate products is justified explains the Royal Institution of Chartered Surveyors (Rics).
"The shift towards variable rate loans is wholly understandable given the shifting perception of interest rate expectations," said Simon Rubinsohn, Rics chief economist.