Borrowers more inclined to take a tracker mortgage

Both residential and buy-to-let borrowers are more inclined to take a tracker rate mortgage, according to Legal & General’s latest quarterly ‘Mortgage Purchase Index’.

The Index analyses trends from thousands of mortgage applications made through its ‘Mortgage Club’. For Q4 2009, the data reveals a big shift towards tracker rate mortgages. In fact, 43% of residential mortgages were tracker rates, up from 17% last quarter. In addition, 57% of buy-to-let borrowers chose a tracker compared to 30% last quarter.

The average two year fixed rate remained broadly static, dropping slightly from 4.99% to 4.98%, but the average three year fixed rates fell from 5.86% to 5.46%; an the average five year fixed rate dropped from 6.42% to 5.80%.

Stephen Smith, Director of Housing at Legal & General said:

“There has been a distinct shift towards tracker rates, most likely because fixed rates are looking relatively expensive and because fears of imminent base rate rises are receding. Most commentators are still expecting the base rate to stay low for some time to come, so this is a golden opportunity for people to think about paying off some of their debt. The low interest rate environment has lead to a fair bit of innovation in tracker products, what with capped trackers, reverse stepped trackers and lifetime trackers all featuring recently.”

“Average two year fixed rates have remained roughly in line with last quarter, but three and five year fixed rates are down 40 basis points and 62 basis point respectively. Furthermore, in the last week or so quite a few lenders have been cutting their fixed rates, so it will be interesting to see how this feeds through to our figures for next quarter. 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. The industry seems to have shrugged off the concerns of 2009 and is starting the New Year with fresh optimism.”