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Fixed rate and longer-term products hit the mark with borrowers in Q2

27th August 2014 Print

In the second quarter there was a 4% reduction in the number of tracker products being processed by intermediaries, which is a second successive fall in numbers for this interest rate type.

Specialist buy-to-let lender Paragon Mortgages’ quarterly intermediary survey, which has been tracking trends in the intermediary sector for both residential and buy-to-let mortgages since 1995, revealed an increase in the proportion of fixed rate products being processed in Q2, rising to 80% of intermediary mortgage business from 77% in Q1.

Over the last ten years, movements in applications for tracker and fixed rate products processed by intermediaries have largely mirrored each other, which continued to be the case for Q2.

For initial product periods, two year terms continue to be the most popular among borrowers, accounting for nearly half (49%) of all fixed rate and tracker mortgage cases, followed by five years at 30%.

However, since Q1, the proportion of two year initial terms has fallen from 53% to 49%, which is the second successive fall in popularity for this length of term. In comparison, there has been a further rise in borrowers taking out five year terms, increasing for a second time from 24% in Q4 2013 and 28% in Q1 2014, to 30% in Q2.

John Heron, Managing Director of Paragon Mortgages, said: “It remains no surprise to see that fixed rate mortgages are increasing in popularity. With the prospect of impending interest rate rises in addition to continued market fragility in many areas, many borrowers are opting for a less risky and more predictable approach.

“The decrease in two year initial terms reflects the increasing popularity of three and five year options. This shows that longer initial terms are increasing in popularity among borrowers, despite two year terms holding the top spot. It is encouraging to see further improvement in the numbers of longer-term cases being processed. This also reflects the continued more cautious attitude among borrowers, considering the greater stability and predictability provided by longer-term options.”